Category: GOVERNMENT TAX PROGRAMS


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                  Income Tax Newsletter

February 2017 rlc-smileytjb_-01-10-17_biz_-linkedin-photo-rlc-01-25-17

from Rex Crandell’s Tax Office

Walnut Creek and San Francisco.

 February 2017

 

Who Should File a 2016 Tax Return?

Most people file a tax return because they have to, but even if you don’t, there are times when you should–because you might be eligible for a tax refund and not know it. The six tax tips below should help you determine whether you’re one of them.

  1. General Filing Rules. Whether you need to file a tax return this year depends on several factors. In most cases, the amount of your income, your filing status, and your age determine whether you must file a tax return. For example, if you’re single and 28 years old you must file if your income, was at least $10,350. Other rules may apply if you’re self-employed or if you’re a dependent of another person. There are also other cases when you must file. If you have any questions, don’t hesitate to call.
  2. Premium Tax Credit.If you bought health insurance through the Health Insurance Marketplace in 2016, you might be eligible for the Premium Tax Credit; however, you will need to file a return to claim the credit.

If you purchased coverage from the Marketplace in 2016 and chose to have advance payments of the premium tax credit sent directly to your insurer during the year, you must file a federal tax return. You will reconcile any advance payments with the allowable premium tax credit.

You should have received Form 1095-A, Health Insurance Marketplace Statement, by early February. The new form has information that helps you file your tax return and reconcile any advance payments with the allowable Premium Tax Credit.

  1. Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.
  2. Earned Income Tax Credit. Did you work and earn less than $53,505 last year? You could receive EITC as a tax refund if you qualify with or without a qualifying child. You may be eligible for up to $6,269. If you qualify, file a tax return to claim it.
  3. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit.
  4. American Opportunity Credit.The AOTC (up to $2,500 per eligible student) is available for four years of post-secondary education. You or your dependent must have been a student enrolled at least half-time for at least one academic period. Even if you don’t owe any taxes, you still may qualify; however, you must complete Form 8863, Education Credits, and file a return to claim the credit.

Which Tax Form is Right for You?

You can generally use Form 1040EZ if:

  • Your taxable income is below $100,000;
  • Your filing status is single or married filing jointly;
  • You don’t claim dependents; and
  • Your interest income is $1,500 or less.

Note: You can’t use Form 1040EZ to claim the new Premium Tax Credit. You also can’t use this form if you received advance payments of this credit in 2016.

Form 1040A may be best for you if:

  • Your taxable income is below $100,000;
  • You have capital gain distributions;
  • You claim certain tax credits; and
  • You claim adjustments to income for IRA contributions and student loan interest.

You must use Form 1040 if:

  • Your taxable income is $100,000 or more;
  • You claim itemized deductions;
  • You report self-employment income; or
  • You report income from sale of a property.

Questions?

Help is just a phone call away. Call or make an appointment today and get the answers you need right now.

 

IRS Tax Scams 2017: FAQs

As tax season approaches, taxpayers are reminded to be on the lookout for an array of evolving tax scams related to identity theft and refund fraud. Every year scam artists look for new ways to trick taxpayers out of their hard-earned money, sensitive financial information or even access to their computers. It seems that no matter how careful you are there’s always a possibility that identity thieves could steal your personal information and try to cash in by filing fraudulent tax returns in your name.

Here’s what you need to know this year:

Which tax scams should I be on the lookout for this tax season?

This tax season some of the most prevalent IRS-impersonation scams include:

Requesting fake tax payments: The IRS has seen automated calls where scammers leave urgent callback requests telling taxpayers to call back to settle their “tax bill.” These fake calls generally claim to be the last warning before legal action is taken. Taxpayers may also receive live calls from IRS impersonators. They may demand payments on prepaid debit cards, iTunes and other gift cards or wire transfer. The IRS reminds taxpayers that any request to settle a tax bill using any of these payment methods is a clear indication of a scam.

Targeting students and parents and demanding payment for a fake “Federal Student Tax”: Telephone scammers are targeting students and parents demanding payments for fictitious taxes, such as the “Federal Student Tax.” If the person does not comply, the scammer becomes aggressive and threatens to report the student to the police to be arrested.

Sending a fraudulent IRS bill for tax year 2015 related to the Affordable Care Act: The IRS has received numerous reports around the country of scammers sending a fraudulent version of CP2000 notices for tax year 2015. Generally, the scam involves an email or letter that includes the fake CP2000. The fraudulent notice includes a payment request that taxpayers mail a check made out to “I.R.S.” to the “Austin Processing Center” at a Post Office Box address.

Soliciting W-2 information from payroll and human resources professionals: Payroll and human resources professionals should be aware of phishing email schemes that pretend to be from company executives and request personal information on employees. The email contains the actual name of the company chief executive officer. In this scam, the “CEO” sends an email to a company payroll office employee and requests a list of employees and financial and personal information including Social Security numbers (SSN).

Imitating software providers to trick tax professionals: Tax professionals may receive emails pretending to be from tax software companies. The email scheme requests the recipient to download and install an important software update via a link included in the e-mail. Upon completion, tax professionals believe they have downloaded a software update when in fact they have loaded a program designed to track the tax professional’s keystrokes, which is a common tactic used by cyber thieves to steal login information, passwords and other sensitive data.

“Verifying” tax return information over the phone: Scam artists call saying they have your tax return, and they just need to verify a few details to process your return. The scam tries to get you to give up personal information such as a Social Security number (SSN) or personal financial information, including bank numbers or credit cards.

Pretending to be from the tax preparation industry: The emails are designed to trick taxpayers into thinking these are official communications from the IRS or others in the tax industry, including tax software companies. The phishing schemes can ask taxpayers about a wide range of topics. E-mails or text messages can seek information related to refunds, filing status, confirming personal information, ordering transcripts and verifying PIN information.

What are the signs of identity theft?

Here are six signs that could indicate that you may be a victim of tax-related identity theft:

  1. Your attempt to file your tax return electronically is rejected. You get a message saying a return with a duplicate Social Security number has been filed. First, check to make sure you did not transpose any numbers. Also, make sure one of your dependents, for example, your college-age child, did not file a tax return and claim themselves. If your information is accurate, and you still can’t successfully e-file because of a duplicate SSN, you may be a victim of identity theft. You should complete Form 14039, Identity Theft Affidavit. Attach it to the top of a paper tax return and mail to the IRS.
  2. You receive a letter from the IRS asking you to verify whether you sent a tax return bearing your name and SSN. The IRS holds suspicious tax returns and sends taxpayers letters to verify them. If you did not file the tax return, follow the instructions in the IRS letter immediately.
  3. You receive income information at tax time from an employer unknown to you. Employment-related identity theft involves the use of your SSN by someone, generally an undocumented worker, for employment purposes only.
  4. You receive a tax refund that you did not request. You may receive a paper refund check by mail that the thief intended to have sent elsewhere. If you receive a tax refund you did not request, return it to the IRS. Write “VOID” in the endorsement section, and include a note on why you are returning it. If it is a direct deposit refund that you did not request, contact your bank and ask them to return it to the IRS.
  5. You receive a tax transcript by mail that you did not request. Identity thieves sometimes try to test the validity of the personal data they have chosen, or they attempt to use your data to steal even more information. If you receive a tax transcript in the mail and you did not request it, be alert to the possibility of identity theft.
  6. You receive a reloadable, prepaid debit card in the mail that you did not request. Identity thieves sometimes use your name and address to create an account for a reloadable prepaid debit card that they use for various schemes, including tax-related identity theft.

What are tax preparers and other tax professionals doing to protect my financial data?

Unfortunately, tax professionals are increasingly targets of cyber criminals seeking access to client data now as well. Criminals use this stolen information to file fraudulent tax returns for refunds; however, tax preparers and other tax professionals are able to protect their clients–and themselves in the event of a data breach by implementing critical steps such as:

Contacting the IRS and law enforcement:

Report client data theft to your local IRS Stakeholder Liaison. Liaisons will notify IRS Criminal Investigation and others within the agency on your behalf. Speed is critical. If reported quickly, the IRS can take steps to block fraudulent returns in your clients’ names. Contact local police to file a police report on the data breach, as well as the local FBI office and Secret Service (if directed).

Contacting states in which you prepare state returns:

Contacting the tax agency in each state in which you prepare returnsContact the State Attorneys General in each state in which you prepare returns. Most states require that the attorney general is notified of data breaches. This notification process may involve multiple offices.

Contacting experts:

Security experts can determine the cause and scope of the breach, what to do to stop the breach and prevent further breaches from occurring. A data breach should also be reported to your insurance company to determine if your insurance policy covers data breach mitigation expenses.

Contacting clients and other services:

  • The Federal Trade Commission offers tips and templates for businesses that suffer data compromise, including suggested language for informing clients.
  • Send an individual letter to any clients who have been a victim of a data breach to inform them of the breach but work with law enforcement on timing. Remember that you may need to contact former clients if their prior year data was still in your system.
  • Notify your tax software provider who may need to take steps to prevent inappropriate use of your account for e-filing.
  • It’s possible that your firm and client passwords may have been compromised and need to be reset, so it’s important to contact your website and/or client portal provider(s).
  • The Federal Trade Commission offers tips and templates for businesses that suffer data compromise, including suggested language for informing clients.
  • If required, notify a credit and/or ID theft protection agency. Certain states require offering credit monitoring and ID theft protection to victims of ID theft.
  • Notify credit bureaus if there is a compromise. Clients may seek their services.

What should I do if I’ve received a suspicious phone call or email from someone claiming to be from the IRS?

If you receive an unexpected call, unsolicited email, letter or text message from someone claiming to be from the IRS, be advised that the IRS will never:

  • Call to demand immediate payment using a specific payment method such as a prepaid debit card, gift card or wire transfer or initiate contact by email or text message. Generally, the IRS will first mail you a bill if you owe any taxes.
  • Threaten to immediately bring in local police or other law-enforcement groups to have you arrested for not paying.
  • Demand that you pay taxes without giving you the opportunity to question or appeal the amount they say you owe.
  • Ask for credit or debit card numbers over the phone.

If you get a suspicious phone call from someone claiming to be from the IRS and asking for money, here’s what you should do:

  • Do not give out any information. Hang up immediately.
  • Search the web for telephone numbers scammers leave in your voicemail asking you to call back. Some of the phone numbers may be published online and linked to criminal activity.
  • Contact TIGTA to report the call. Use their IRS Impersonation Scam Reporting web page or call 800-366-4484.
  • Report it to the Federal Trade Commission. Use the FTC Complaint Assistant on FTC.gov. Please add “IRS Telephone Scam” in the notes.
  • If you think you might owe taxes, call the IRS directly at 800-829-1040.

If you receive an unsolicited email that appears to be from either the IRS or an organization closely linked to the IRS, such as the Electronic Federal Tax Payment System (EFTPS), report it by sending it to phishing@irs.gov.

If you have any questions or believe that you’ve been a victim of an IRS tax scam, don’t hesitate to call.

 

Five Ways to Improve your Financial Situation

If you are having trouble paying your debts, it is important to take action sooner rather than later. Doing nothing leads to much larger problems in the future, whether it’s a bad credit record or bankruptcy resulting in the loss of assets and even your home. If you’re in financial trouble, then here are some steps to take to avoid financial ruin in the future.

If you’ve accumulated a large amount of debt and are having difficulty paying your bills each month, now is the time to take action–before the bill collectors start calling.

  1. Review each debt.Make sure that the debt creditors claim you owe is really what you owe and that the amount is correct. If you dispute a debt, first contact the creditor directly to resolve your questions. If you still have questions about the debt, contact your state or local consumer protection office or, in cases of serious creditor abuse, your state Attorney General.
  2. Contact your creditors.Let your creditors know you are having difficulty making your payments. Tell them why you are having trouble, perhaps it is because you recently lost your job or have unexpected medical bills. Try to work out an acceptable payment schedule with your creditors. Most are willing to work with you and will appreciate your honesty and forthrightness.

Tip: Most automobile financing agreements permit your creditor to repossess your car any time you are in default, with no advance notice. If your car is repossessed you may have to pay the full balance due on the loan, as well as towing and storage costs, to get it back. Do not wait until you are in default. Try to solve the problem with your creditor when you realize you will not be able to meet your payments. It may be better to sell the car yourself and pay off your debt than to incur the added costs of repossession.

  1. Budget your expenses.Create a spending plan that allows you to reduce your debts. Itemize your necessary expenses (such as housing and healthcare) and optional expenses (such as entertainment and vacation travel). Stick to the plan.
  2. Try to reduce your expenses.Cut out any unnecessary spending such as eating out and purchasing expensive entertainment. Consider taking public transportation or using a car sharing service rather than owning a car. Clip coupons, purchase generic products at the supermarket and avoid impulse purchases. Above all, stop incurring new debt. Leave your credit cards at home. Pay for all purchases in cash or use a debit card instead of a credit card.
  3. Pay down and consolidate your debts.Withdrawing savings from low-interest accounts to settle high-rate loans or credit card debt usually makes sense. In addition, there are a number of ways to pay off high-interest loans, such as credit cards, by getting a refinancing or consolidation loan, such as a second mortgage.

Tip: Selling off a second car not only provides cash but also reduces insurance and other maintenance expenses.

Caution: Be wary of any loan consolidations or other refinancing that actually increase interest owed, or require payments of points or large fees.

Caution: Second mortgages greatly increase the risk that you may lose your home.

You can regain financial health if you act responsibly. But don’t wait until bankruptcy court is your only option. If you’re having financial troubles, don’t hesitate to call.

 

Claiming an Elderly Parent or Relative as a Dependent

Are you taking care of an elderly parent or relative? Whether it’s driving to doctor appointments, paying for nursing home care or medical expenses, or handling their personal finances, dealing with an elderly parent or relative can be emotionally and financially draining, especially when you are taking care of your own family as well.

Fortunately, there is some good news: You may be able to claim your elderly relative as a dependent come tax time, as long as you meet certain criteria. Here’s what you should know about claiming an elderly parent or relative as a dependent:

Who Qualifies as a Dependent?

The IRS defines a dependent as a qualifying child or relative. A qualifying relative can be your mother, father, grandparent, stepmother, stepfather, mother-in-law, or father-in-law, for example, and can be any age.

There are four tests that must be met in order for a person to be your qualifying relative: not a qualifying child test, member of household or relationship test, gross income test, and support test.

Not a Qualifying Child

Your parent (or relative) cannot be claimed as a qualifying child on anyone else’s tax return.

Residency

He or she must be U.S. citizen, U.S. resident alien, U.S. national, or a resident of Canada or Mexico; however, a parent or relative doesn’t have to live with you in order to qualify as a dependent.

If your qualifying parent or relative does live with you, however, you may be able to deduct a percentage of your mortgage, utilities, and other expenses when you figure out the amount of money you contribute to his or her support.

Income

To qualify as a dependent, income cannot exceed the personal exemption amount, which in 2016 (and 2017) is $4,050. In addition, your parent or relative, if married, cannot file a joint tax return with his or her spouse unless that joint return is filed only to claim a refund of withheld income tax or estimated tax paid.

Support

You must provide more than half of a parent’s total support for the year such as costs for food, housing, medical care, transportation and other necessities.

Claiming the Dependent Care Credit

You may be able to claim the child and dependent care credit if you paid work-related expenses for the care of a qualifying individual. The credit is generally a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income. Work-related expenses qualifying for the credit are those paid for the care of a qualifying individual to enable you to work or actively look for work.

In addition, expenses you paid for the care of a disabled dependent may also qualify for a medical deduction (see next section). If this is the case, you must choose to take either the itemized deduction or the dependent care credit. You cannot take both.

Claiming the Medical Deduction

If you claim the deduction for medical expenses, you still must provide more than half your parent’s support; however, your parent doesn’t have to meet the income test.

The deduction is limited to medical expenses that exceed 10 percent of your adjusted gross income (For tax years 2013-2106, this amount is 7.5 percent if either you or your spouse was born before January 2, 1949), and you can include your own unreimbursed medical expenses when calculating the total amount. If, for example, your parent is in a nursing home or assisted-living facility. Any medical expenses you paid on behalf of your parent are counted toward the 10 percent figure. Food or other amenities, however, are not considered medical expenses.

What if you share caregiving responsibilities?

If you share caregiving responsibilities with a sibling or other relative, only one of you–the one proving more than 50 percent of the support–can claim the dependent. Be sure to discuss who is going to claim the dependent in advance to avoid running into trouble with the IRS if both of you claim the dependent on your respective tax returns.

Sometimes, however, neither caregiver pays more than 50 percent. In that case, you’ll need to fill out IRS Form 2120, Multiple Support Declaration, as long as you and your sibling both provide at least 10 percent of the support towards taking care of your parent.

The tax rules for claiming an elderly parent or relative are complex. If you have any questions, help is just a phone call away.

 

Five Tax Breaks that Expired in 2016

Many tax provisions were made permanent with the passage of the PATH Act in late 2015, but more than 36 others expired at the end of 2016. Here are the five that are most likely to affect taxpayers like you.

  1. Mortgage Insurance Premiums
    Mortgage insurance premiums (PMI) are paid by homeowners with less than 20 percent equity in their homes. These premiums were deductible in tax years 2013, 2014, 2015, and once again in 2016. Mortgage interest deductions for taxpayers who itemize are not affected.
  2. Exclusion of Discharge of Principal Residence Indebtedness
    Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision was extended through 2016, allowing homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of canceled mortgage debt. Also included are taxpayers seeking debt modification on their home.
  3. Energy Efficient Improvements
    This tax break has been around for a while, but if you made your home more energy efficient in 2016, now is your last chance to take advantage of this tax credit on your tax return. The credit reduces your taxes as opposed to a deduction that reduces your taxable income and is 10 percent of the cost of building materials for items such as insulation, new water heaters, geothermal heat pumps, or a wood pellet stove.

Note: This tax is cumulative, so if you’ve taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2015, the maximum credit you could take this year is $200.

  1. Qualified Tuition and Expenses

The deduction for qualified tuition and fees, extended through 2016, is an above-the-line tax deduction, which means that you don’t have to itemize your deductions to claim the expense. Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) can take a deduction up to $2,000; however, taxpayers with income over those amounts are not eligible for the deduction.

Qualified education expenses are defined as tuition and related expenses required for enrollment or attendance at an eligible educational institution. Related expenses include student-activity fees and expenses for books, supplies, and equipment as required by the institution.

  1. Exemption from Increase in Medical Expense Threshold Amounts

Starting in 2013, threshold amounts for medical expense deductions increased from 7.5 percent to 10 percent of AGI. Seniors (age 65 during or before the tax year) were temporarily exempt from the 10 percent threshold of adjusted gross income (AGI), which applied to tax years starting after December 31, 2012 and and ending before January 1, 2017.

Don’t miss out on the tax breaks you are entitled to.

If you’re wondering whether you should be taking advantage of these and other tax credits and deductions, please call today.

 

2017 Tax Filing Season; Tax Returns due April 18

The IRS began accepting electronic and paper tax returns on Monday, Jan. 23, 2017. More than 153 million individual tax returns are expected to be filed in 2017, according to the IRS.

Taxpayers are reminded that a new law (more details, below) requires the IRS to hold refunds claiming the Additional Child Tax Credit (ACTC) and the Earned Income Tax Credit (EITC) until February 15, although due to weekends and the President’s Day holiday, many affected taxpayers may not have access to their refunds until the week of February 27. Taxpayers should file as usual, and tax return preparers should also submit returns as they normally do–including returns claiming EITC and ACTC.

April 18 Filing Deadline

The filing deadline to submit 2016 tax returns is Tuesday, April 18, 2017, rather than the traditional April 15 date. In 2017, April 15 falls on a Saturday, and this would usually move the filing deadline to the following Monday (April 17). However, Emancipation Day, which is a legal holiday in the District of Columbia, will be observed on that Monday, which pushes the nation’s filing deadline to Tuesday, April 18, 2017. Under the tax law, legal holidays in the District of Columbia affect the filing deadline across the nation.

The IRS also has been working with the tax industry and state revenue departments as part of the Security Summit, a joint initiative between the IRS and representatives of the software industry, tax preparation firms, payroll and tax financial product processors and state tax administrators to combat identity theft refund fraud and protect the nation’s taxpayers. A number of new provisions are being added in 2017 to expand progress made during the past year.

Refunds in 2017

The IRS anticipates issuing more than nine out of 10 refunds in less than 21 days, but there are some important factors to keep in mind for taxpayers.

Beginning in 2017, a new law requires the IRS to hold refunds on tax returns claiming the Earned Income Tax Credit or the Additional Child Tax Credit until mid-February. Under the change required by Congress in the Protecting Americans from Tax Hikes (PATH) Act, the IRS must hold the entire refund (even the portion not associated with the EITC and ACTC) until at least February 15. This change helps ensure that taxpayers get the refund they are owed by giving the IRS more time to help detect and prevent fraud.

The IRS will begin releasing EITC and ACTC refunds starting February 15. However, the IRS cautions taxpayers that these refunds likely won’t arrive in bank accounts or on debit cards until the week of February 27 (assuming there are no processing issues with the tax return and the taxpayer chose direct deposit). This additional period is due to several factors, including banking and financial systems needing time to process deposits.

After refunds leave the IRS, it takes additional time for them to be processed and for financial institutions to accept and deposit the refunds to bank accounts and products. Many financial institutions do not process payments on weekends or holidays, which can affect when refunds reach taxpayers. For EITC and ACTC filers, the three-day holiday weekend involving President’s Day may affect their refund timing.

Need Help?

Don’t hesitate to call the office if you have any questions or need assistance filing your tax return this year.

 

Missing your Form W-2?

You should receive a Form W-2, Wage and Tax Statement, from each of your employers for use in preparing your federal tax return. Employers must furnish this record of 2016 earnings and withheld taxes no later than January 31, 2017 (if mailed, allow a few days for delivery).

If you do not receive your Form W-2, contact your employer to find out if and when the W-2 was mailed. If it was mailed, it may have been returned to your employer because of an incorrect address. After contacting your employer, allow a reasonable amount of time for your employer to resend or to issue the W-2.

If you still do not receive your W-2 by mid-February, contact the IRS for assistance at 1-800-829-1040. When you call, have the following information handy:

  • the employer’s name and complete address, including zip code, and the employer’s telephone number;
  • the employer’s identification number (if known);
  • your name and address, including zip code, Social Security number, and telephone number; and
  • an estimate of the wages you earned, the federal income tax withheld, and the dates you began and ended employment. You can use your final pay stub for these amounts.

If you misplaced your W-2, contact your employer. Your employer can replace the lost form with a “reissued statement.” Be aware that your employer is allowed to charge you a fee for providing you with a new W-2.

You still must file your tax return on time even if you do not receive your Form W-2. If you cannot get a W-2 by the tax filing deadline, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement, but it will delay any refund due while the information is verified.

If you receive a corrected W-2 after your return is filed and the information it contains does not match the income or withheld tax that you reported on your return, you must file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return.

Important: 2016 Health Insurance Forms

Starting in 2016, most taxpayers received one or more forms relating to health care coverage they had during the previous year.

If you enrolled in 2016 coverage through the Health Insurance Marketplace, you should receive Form 1095-A, Health Insurance Marketplace Statement by early February.

If you were enrolled in other health coverage for 2016, you should receive a Form 1095-B, Health Coverage, or Form 1095-C, Employer-Provided Health insurance Offer and Coverage by the end of March. Contact the issuer of the form (either the Marketplace, your coverage provider or your employer) if you think you should have received a form but did not get one.

If you are expecting to receive a Form 1095-A, you should wait to file your 2016 income tax return until you receive that form. However, it is not necessary to wait for Forms 1095-B or 1095-C in order to file.

If you have questions about your Forms W-2 or 1099 or any other tax-related materials, please call or email the office.

 

Updated Withholding Tables for 2017

Updated income-tax withholding tables for 2017 have been released. The newly revised version contains percentage method income-tax withholding tables and related information that employers need to implement these changes.

In addition, employers should continue withholding Social Security tax at the rate of 6.2 percent of wages paid. The Social Security wage base limit increases to $127,200 ($118,500 in 2016). The Medicare tax rate remains at 1.45 percent each for the employee and employer.

The additional Medicare tax of 0.9 percent for employees (not employers) remains in effect and should be withheld from employee wages that exceed $200,000 in a calendar year, at the beginning in the pay period in which the employee’s wages exceed $200,000.

In 2017 the amount for one withholding allowance on an annual basis is $4,050 (same as 2016). Employers should start using the revised withholding tables and correct the amount of Social Security tax withheld as soon as possible in 2017, but not later than February 16, 2017. For any Social Security tax under-withheld before that date, employers should make the appropriate adjustment in workers’ pay as soon as possible, but not later than March 31, 2017.

Employers and payroll companies handle the withholding changes, so workers typically won’t need to take any additional action, such as filling out a new W-4 withholding form. Individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

As always, it’s prudent for workers to review their withholding every year and, if necessary, fill out a new W-4 to give to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

Please call the office if you have any questions about income tax withholding in 2017.

 

Kids’ Day Camp Expenses May Qualify for a Tax Credit

Day camps are common during school vacations and the summer months. Many parents enroll their children in a day camp or pay for day care so they can work or look for work. If this applies to you, your costs may qualify for a federal tax credit. Here are 10 things to know about the Child and Dependent Care Credit:

  1. Care for Qualifying Persons. Your expenses must be for the care of one or more qualifying persons. Your dependent child or children under age 13 generally qualify.
  2. Work-related Expenses. Your expenses for care must be work-related. In other words, you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they are physically or mentally incapable of self-care.
  3. Earned Income Required. You must have earned income. Earned income includes wages, salaries and tips. It also includes net earnings from self-employment. Your spouse must also have earned income if you file jointly. Your spouse is treated as having earned income for any month that they are a full-time student or incapable of self-care.
  4. Joint Return if Married. Generally, married couples must file a joint return. You can still take the credit, however, if you are legally separated or living apart from your spouse.
  5. Type of Care. You may qualify for the credit whether you pay for care at home, at a daycare facility or at a day camp.
  6. Credit Amount. The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on your income.
  7. Expense Limits. The total expense that you can use in a year is limited. The limit is $3,000 for one qualifying person or $6,000 for two or more.
  8. Certain Care Does Not Qualify. You may not include the cost of certain types of care for the tax credit, including:
  • Overnight camps or summer school tutoring costs.
  • Care provided by your spouse or your child who is under age 19 at the end of the year.
  • Care given by a person you can claim as your dependent.
  1. Keep Records and Receipts.Keep all your receipts and records for when you file taxes next year. You will need the name, address and taxpayer identification number of the care provider. You must report this information when you claim the credit on Form 2441, Child and Dependent Care Expenses.
  2. Dependent Care Benefits.Special rules apply if you get dependent care benefits from your employer.

Keep in mind this credit is not just a school vacation or summer tax benefit. You may be able to claim it at any time during the year for qualifying care. For more information, please call the office.

 

Qualifying for a Health Coverage Exemption

With the 2017 tax filing season in full swing, it’s not too early to think about how the health care law affects your taxes. The Affordable Care Act requires you and each member of your family to do at least one of the following:

  • Have qualifying health coverage called minimum essential coverage
  • Qualify for a health coverage exemption
  • Make a shared responsibility payment with your federal income tax return for the months that you did not have coverage or an exemption

If you meet certain criteria for the tax year, you may be exempt from the requirement to have minimum essential coverage. You will not have to make a shared responsibility payment for any month that you are exempt. Instead, you’ll file Form 8965, Health Coverage Exemptions, with your federal income tax return. For any month that you do not qualify for a coverage exemption, you will need to have minimum essential coverage or make a shared responsibility payment. You may be exempt if you meet one of the following:

  • The lowest-cost coverage available to you is considered unaffordable
  • You have a gap in coverage that is less than three (3) consecutive months
  • You qualify for an exemption for one of several other reasons, including having a hardship that prevents you from obtaining coverage or belonging to a group specifically exempt from the coverage requirement

The Federally-facilitated Marketplace is no longer granting exemptions for members of a health care sharing ministry, members of Indian Tribes, and incarceration. Eligible individuals can still claim these exemptions on a tax return. For a full list of exemptions and how to claim them, please call.

Federal tax returns that do not reflect at least one of these options–reporting health care coverage, claiming a coverage exemption or reporting a shared responsibility payment–will be rejected if the return is filed electronically. If filed on paper, tax returns that do not reflect at least one of these options will take longer to process and any refunds will be delayed. You should respond promptly to IRS correspondence about your health care coverage.

Questions?

To find out if you’re eligible for a coverage exemption or must make a payment, don’t hesitate to contact the office. Help is just a phone call away.

 

Tax Due Dates for February 2017

February 10

Employees – who work for tips. If you received $20 or more in tips during January, report them to your employer. You can use Form 4070.

Employers – Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2016. This due date applies only if you deposited the tax for the quarter in full and on time.

Farm Employers – File Form 943 to report Social Security and Medicare taxes and withheld income tax for 2016. This due date applies only if you deposited the tax for the year in full and on time.

Certain Small Employers – File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2016. This tax due date applies only if you deposited the tax for the year in full and on time.

Employers – Nonpayroll taxes. File Form 945 to report income tax withheld for 2016 on all nonpayroll items. This due date applies only if you deposited the tax for the year in full and on time.

Employers – Federal unemployment tax. File Form 940 for 2016. This due date applies only if you deposited the tax for the year in full and on time.

February 15

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in January.

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in January.

Individuals – If you claimed exemption from income tax withholding last year on the Form W-4 you gave your employer, you must file a new Form W-4 by this date to continue your exemption for another year.

All businesses. Give annual information statements to recipients of certain payments you made during 2016. You can use the appropriate version of Form 1099 or other information return.

February 16

Employers – Begin withholding income tax from the pay of any employee who claimed exemption from withholding in 2016, but did not give you a new Form W-4 to continue the exemption this year.

February 28

Businesses – File information returns (Form 1099) for certain payments you made during 2016. These payments are described under January 31. There are different forms for different types of payments. Use a separate Form 1096 to summarize and transmit the forms for each type of payment. See the 2016 Instructions for Forms 1099, 1098, 5498, and W-2G for information on what payments are covered, how much the payment must be before a return is required, what form to use, and extensions of time to file.

If you file Forms 1097, 1098, 1099, 3921, 3922, or W-2G electronically (except Form 1099-MISC reporting nonemployee compensation), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms is still January 31.

Payers of Gambling Winnings – File Form 1096, Annual Summary and Transmittal of U.S. Information Returns, along with Copy A of all the Forms W-2G you issued for 2016. If you file Forms W-2G electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31. The due date for giving the recipient these forms remains January 31.

Large Food and Beverage Establishment Employers – with employees who work for tips. File Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips. Use Form 8027-T, Transmittal of Employer’s Annual Information Return of Tip Income and Allocated Tips, to summarize and transmit Forms 8027 if you have more than one establishment. If you file Forms 8027 electronically (not by magnetic tape), your due date for filing them with the IRS will be extended to March 31.

Health Coverage Reporting – If you’re an Applicable Large Employer, file paper Forms 1094-­C, Transmittal of Employer–Provided Health Insurance Offer and Coverage Information Returns, and 1095-­C with the IRS. For all other providers of minimum essential coverage, file paper Forms 1094-­B, Transmittal of Health Coverage Information Returns, and 1095-­B with the IRS. If you’re filing any of these forms with the IRS electronically, your due date for filing them will be extended to March 31.

March 1

Farmers and Fishermen – Farmers and fishermen. File your 2016 income tax return (Form 1040) and pay any tax due. However, you have until April 18 to file if you paid your 2016 estimated tax by January 17, 2017.

 

Rex Crandell Firm
3000 Citrus Circle, #207
Walnut Creek, CA, 94598
Phone: (925) 934-6320
RexCrandell@astound.net

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

 

Copyright © 2017  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

THE END.  THANK YOU FOR YOUR TIME AND ATTENTION………………..

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Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
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or by e-mail at:    rexcrandell@astound.net

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We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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  2017 Tax Changes for 2016 Tax Returns

 (from TaxRexCrandell.com)

Many of the tax changes affecting individuals and businesses for 2016 were related to the Protecting Americans from Tax Hikes Act of 2015 (PATH) that modified or made permanent numerous tax breaks (the so-called “tax extenders”). To further complicate matters, some provisions were only extended through 2016 and are set to expire at the end of this year while others were extended through 2019. With that in mind, here’s what individuals and families need to know about tax provisions for 2016.


Standard Deductions

The standard deduction for married couples filing a joint return in 2016 is $12,600. For singles and married individuals filing separately, it is $6,300, and for heads of household the deduction is $9,300.
The additional standard deduction for blind people and senior citizens in 2016 is $1,250 for married individuals and $1,550 for singles and heads of household.

Income Tax Rates

In 2016 the top tax rate of 39.6 percent affects individuals whose income exceeds $415,051 ($466,951 for married taxpayers filing a joint return). Marginal tax rates for 2016–10, 15, 25, 28, 33 and 35 percent–remain the same as in prior years.
Due to inflation, tax-bracket thresholds increased for every filing status. For example, the taxable-income threshold separating the 15 percent bracket from the 25 percent bracket is $75,300 for a married couple filing a joint return.
Estate and Gift Taxes
In 2016 there is an exemption of $5.45 million per individual for estate, gift and generation-skipping taxes, with a top tax rate of 40 percent. The annual exclusion for gifts is $14,000.
Alternative Minimum Tax (AMT)
AMT exemption amounts were made permanent and indexed for inflation retroactive to 2012. In addition, non-refundable personal credits can now be used against the AMT.
For 2016, exemption amounts are $53,900 for single and head of household filers, $83,800 for married people filing jointly and for qualifying widows or widowers, and $41,900 for married people filing separately.

Marriage Penalty Relief

The basic standard deduction for a married couple filing jointly in 2016 is $12,600.
Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations were made permanent by ATRA (indexed for inflation) and affect taxpayers with income at or above $259,400 for single filers and $311,300 for married filing jointly in tax year 2016.
Flexible Spending Accounts (FSA)
Flexible Spending Accounts (FSAs) are limited to $2,550 per year in 2016 (same as 2015) and apply only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.
Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,550 limit for the subsequent plan year.
Further, employers may allow people to carry over into the next calendar year up to $500 in their accounts, but aren’t required to do so.

Long Term Capital Gains

In 2016 taxpayers in the lower tax brackets (10 and 15 percent) pay zero percent on long-term capital gains. For taxpayers in the middle four tax brackets the rate is 15 percent and for taxpayers whose income is at or above $415,050 ($466,950 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Individuals – Tax Credits

Adoption Credit
In 2016 a nonrefundable (i.e. only those with a lax liability will benefit) credit of up to $13,460 is available for qualified adoption expenses for each eligible child.
Child and Dependent Care Credit
The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.
For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit
For tax year 2016, the child tax credit is $1,000. A portion of the credit may be refundable, which means that you can claim the amount you are owed, even if you have no tax liability for the year. The credit is phased out for those with higher incomes.
Earned Income Tax Credit (EITC)
For tax year 2016, the maximum earned income tax credit (EITC) for low and moderate income workers and working families increased to $6,269 (up from $6,242 in 2015). The maximum income limit for the EITC increased to $53,505 (up from $53,267 in 2015) for married filing jointly. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Individuals – Education Expenses
Coverdell Education Savings Account
You can contribute up to $2,000 a year to Coverdell savings accounts in 2016. These accounts can be used to offset the cost of elementary and secondary education, as well as post-secondary education.
American Opportunity Tax Credit
For 2016, the maximum American Opportunity Tax Credit that can be used to offset certain higher education expenses is $2,500 per student, although it is phased out beginning at $160,000 adjusted gross income for joint filers and $80,000 for other filers.
Employer-Provided Educational Assistance
In 2016, as an employee, you can exclude up to $5,250 of qualifying post-secondary and graduate education expenses that are reimbursed by your employer.


Lifetime Learning Credit

A credit of up to $2,000 is available for an unlimited number of years for certain costs of post-secondary or graduate courses or courses to acquire or improve your job skills. For 2016, the modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $108,000 for joint filers and $54,000 for singles and heads of household.


Student Loan Interest

In 2016 you can deduct up to $2,500 in student-loan interest as long as your modified adjusted gross income is less than $65,000 (single) or $130,000 (married filing jointly). The deduction is phased out at higher income levels. In addition, the deduction is claimed as an adjustment to income so you do not need to itemize your deductions.


Individuals – Retirement
Contribution Limits

For 2016, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $18,000 (same as 2015). For persons age 50 or older in 2016, the limit is $24,000 ($6,000 catch-up contribution). Contribution limits for SIMPLE plans remain at $12,500 (same as 2015) for persons under age 50 and $15,500 for anyone age 50 or older in 2016. The maximum compensation used to determine contributions increased to $265,000.
Saver’s Credit
In 2016, the adjusted gross income limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and-moderate-income workers is $61,500 for married couples filing jointly, $46,125 for heads of household, and $30,750 for married individuals filing separately and for singles.
Please call if you need help understanding which deductions and tax credits you are entitled to.

2016 Recap: Tax Provisions for Businesses
Whether you file as a corporation or sole proprietor here’s what business owners need to know about tax changes for 2016.
Standard Mileage Rates
The standard mileage rates in 2016 are as follows: 54 cents per business mile driven, 19 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.
Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $52,000 (adjusted annually for inflation) in 2016.
In 2016 (as in 2015 and 2014), the tax credit is worth up to 50 percent of your contribution toward employees’ premium costs (up to 35 percent for tax-exempt employers). For tax years 2010 through 2013, the maximum credit was 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities.
Section 179 Expensing and Depreciation
The Section 179 expense deduction was made permanent at $500,000 by the Protecting Americans from Tax Hikes Act of 2015 (PATH). For equipment purchases, the maximum deduction is $500,000 of the first $2.01 million of qualifying equipment placed in service during the current tax year. The deduction is phased out dollar for dollar on amounts exceeding the $2 million threshold amount (indexed for inflation) and eliminated above amounts exceeding $2.5 million. In addition, Section 179 is now indexed to inflation in increments of $10,000 for future tax years.
The 50 percent bonus depreciation has been extended through 2019. Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016 and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019. The standard business depreciation amount is 24 cents per mile.
Please call if you have any questions about Section 179 expensing and the bonus depreciation.
Work Opportunity Tax Credit (WOTC)
Extended through 2019, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire. Please call if you have any questions about the Work Opportunity Tax Credit.
SIMPLE IRA Plan Contributions
Contribution limits for SIMPLE IRA plans increased to $12,500 for persons under age 50 and $15,500 for persons age 50 or older in 2016. The maximum compensation used to determine contributions increases to $265,000.
Please contact the office if you need help understanding which deductions and tax credits you are entitled to.

Employee or Independent Contractor–Which is it?
If you hire someone for a long-term, full-time project or a series of projects that are likely to last for an extended period, you must pay special attention to the difference between independent contractors and employees.

Why It Matters

The Internal Revenue Service and state regulators scrutinize the distinction between employees and independent contractors because many business owners try to categorize as many of their workers as possible as independent contractors rather than as employees. They do this because independent contractors are not covered by unemployment and workers’ compensation, or by federal and state wage, hour, anti-discrimination, and labor laws. In addition, businesses do not have to pay federal payroll taxes on amounts paid to independent contractors.
Caution: If you incorrectly classify an employee as an independent contractor, you can be held liable for employment taxes for that worker, plus a penalty.

The Difference Between Employees and Independent Contractors

Independent Contractors are individuals who contract with a business to perform a specific project or set of projects. You, the payer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result.
Example: Sam Smith, an electrician, submitted a bid of $6,400 to a housing complex for electrical work. Per the terms of his contract, every two weeks for the next 10 weeks, he is to receive a payment of $1,280. This is not considered payment by the hour. Even if he works more or less than 400 hours to complete the work, Sam will still receive $6,400. He also performs additional electrical installations under contracts with other companies that he obtained through advertisements. Sam Smith is an independent contractor.

Note: Labor laws vary by state. Please call if you have specific questions.

Employees provide work in an ongoing, structured basis. In general, anyone who performs services for you is your employee if you can control what will be done and how it will be done. A worker is still considered an employee even when you give them freedom of action. What matters is that you have the right to control the details of how the services are performed.
Example: Sally Jones is a salesperson employed on a full-time basis by Rob Robinson, an auto dealer. She works 6 days a week and is on duty in Rob’s showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Rob. Rob also pays the cost of health insurance and group term life insurance for Sally. Sally Jones is an employee of Rob Robinson.

The IRS, workers’ compensation boards, unemployment compensation boards, federal agencies, and even courts all have slightly different definitions of what an independent contractor is though their means of categorizing workers as independent contractors are similar.
One of the most prevalent approaches used to categorize a worker as either an employee or independent contractor is the analysis created by the IRS, which considers the following:
What instructions the employer gives the worker about when, where, and how to work. The more specific the instructions and the more control exercised, the more likely the worker will be considered an employee.

What training the employer gives the worker. Independent contractors generally do not receive training from an employer.

The extent to which the worker has business expenses that are not reimbursed. Independent contractors are more likely to have unreimbursed expenses.

The extent of the worker’s investment in the worker’s own business. Independent contractors typically invest their own money in equipment or facilities.

The extent to which the worker makes services available to other employers. Independent contractors are more likely to make their services available to other employers.

How the business pays the worker. An employee is generally paid by the hour, week, or month. An independent contractor is usually paid by the job.

The extent to which the worker can make a profit or incur a loss. An independent contractor can make a profit or loss, but an employee does not.

Whether there are written contracts describing the relationship the parties intended to create. Independent contractors generally sign written contracts stating that they are independent contractors and setting forth the terms of their employment.

Whether the business provides the worker with employee benefits, such as insurance, a pension plan, vacation pay, or sick pay. Independent contractors generally do not get benefits.

The terms of the working relationship. An employee generally is employed at will (meaning the relationship can be terminated by either party at any time). An independent contractor is usually hired for a set period.

Whether the worker’s services are a key aspect of the company’s regular business. If the services are necessary for regular business activity, it is more likely that the employer has the right to direct and control the worker’s activities. The more control an employer exerts over a worker, the more likely it is that the worker will be considered an employee.
Minimize the Risk of Misclassification

If you misclassify an employee as an independent contractor, you may end up before a state taxing authority or the IRS.
Sometimes the issue comes up when a terminated worker files for unemployment benefits and it’s unclear whether the worker was an independent contractor or employee. The filing can trigger state or federal investigations that can cost many thousands of dollars to defend, even if you successfully fight the challenge.
There are ways to reduce the risk of an investigation or challenge by a state or federal authority. At a minimum, you should:
Familiarize yourself with the rules. Ignorance of the rules is not a legitimate defense. Knowledge of the rules will allow you to structure and carefully manage your relationships with your workers to minimize risk.

Document relationships with your workers and vendors. Although it won’t always save you, it helps to have a written contract stating the terms of employment.

If you have any questions about how to classify workers, please call.

Understanding the Net Investment Income Tax
One of the most significant tax changes affecting higher income taxpayers was the Net Investment Income Tax that went into effect on January 1, 2013. While it tends to affect wealthier individuals most often, in certain circumstances, it can also affect moderate income taxpayers whose income increases significantly in a given tax year. Here’s what you need to know:
What is the Net Investment Income Tax?
The Net Investment Income Tax (NIIT) is a 3.8 percent tax on certain net investment income of individuals, estates, and trusts with income above statutory threshold amounts, referred to as modified adjusted gross income or MAGI.
What is Included in Net Investment Income?
In general, investment income includes, but is not limited to interest, dividends, capital gains, rental and royalty income, nonqualified annuities, income from businesses involved in trading of financial instruments or commodities, and passive business activities such as rental income or income derived from royalties.
What is Not Included in Net Investment Income?
Wages, unemployment compensation; operating income from a nonpassive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, Alaska Permanent Fund Dividends, and distributions from certain Qualified Plans are not included in net investment income.
Individuals
Individuals with MAGI of $250,000 (married filing jointly) or $200,000 for single filers are taxed at a flat rate of 3.8 percent on investment income such as dividends, taxable interest, rents, royalties, certain income from trading commodities, taxable income from investment annuities, REITs and master limited partnerships, and long and short-term capital gains.
The NIIT is a flat rate tax that is paid in addition to other taxes owed, and threshold amounts are not indexed for inflation.
Non-resident aliens are not subject to the NIIT; however, if a non-resident alien is married to a US citizen and is planning to file as a resident alien for the purposes of filing married jointly, there are special rules. Please call if you have any questions.
Investment income is generally not subject to withholding, so NIIT is going to affect your tax liability for the 2016 tax year. In addition, even lower income taxpayers not meeting the threshold amounts may be subject to NIIT if they receive a windfall such as a one-time sale of assets that bumps their MAGI up high enough to be subject to the NIIT.
Strategies to Minimize NIIT
Tax planning is crucial–for this year as well as next. If you are anticipating a windfall this tax year or next, there are a number of strategies that you could use to minimize your MAGI and reduce or possibly eliminate tax liability when you file your tax return. These include but are not limited to:
Rental Real Estate (depreciation deductions)
Installment sales (including figuring out the best timing for sale)
Roth conversions
Charitable donations
Tax-deferred annuities
Municipal bonds
Sale of a Home
The Net Investment Income Tax does not apply to any amount of gain that is excluded from gross income for regular income tax purposes ($250,000 for single filers and $500,000 for a married couple) on the sale of a principal residence from gross income for regular income tax purposes. In other words, only the taxable part of any gain on the sale of a home has the potential to be subject to NIIT, providing the taxpayer is over the MAGI threshold amount.
Estates and Trusts Affected
Estates and Trusts are subject to NIIT if they have undistributed net investment income and also have adjusted gross income over the dollar amount at which the highest tax bracket for an estate or trust begins for such taxable year. In 2016, this threshold amount is $12,400.
Special rules apply for certain unique types of trusts such a Charitable Remainder Trusts and Electing Small Business Trusts, and some trusts, including “Grantor Trusts” and Real Estate Investment Trusts (REIT) are not subject to the NIIT.
Please note, however, that non-qualified dividends generated by investments in a REIT that are taxed at ordinary tax rates may be subject to the Net Investment Income Tax.
Questions? If you need guidance on the NIIT and estates and trusts, help is just a phone call away.
Reporting and Paying the Net Investment Income Tax
Individual taxpayers should report (and pay) the tax on Form 1040. Estates and Trusts report (and pay) the tax on Form 1041.
Individuals, estates, and trusts that expect to be pay estimated taxes in 2016 or thereafter should adjust their income tax withholding or estimated payments to account for the tax increase in order to avoid underpayment penalties. For employed individuals, the NIIT is not withheld from wages; however, you may request that additional income tax be withheld.
Wondering how the Net Investment Income Tax affects you? Give the office a call today and find out.

Choosing a Retirement Destination
With health care, housing, food, and transportation costs increasing every year, many retirees on fixed incomes wonder how they can stretch their dollars even further. One solution is to move to another state where income taxes are lower than the one they currently reside in.
But some retirees may be in for a surprise. While federal tax rates are the same in every state, retirees may find that even if they move to a state with no income tax, there may be additional taxes they’re liable for including sales taxes, excise taxes, inheritance and estate taxes, income taxes, intangible taxes, and property taxes.
In addition, states tax different retirement benefits differently. Retirees may have several types of retirements benefits such as pensions, social security, retirement plan distributions (which may or not be taxed by a particular state), and additional income from a job if they continue to work in order to supplement their retirement income.
If you’re thinking about moving to a different state when you retire, here are five things to consider before you make that move.
1. Income Tax Rates
Retirees planning to work part-time in addition to receiving retirement benefits should keep in mind that those earnings may be subject to state tax in certain states, as well as federal income tax if your combined income (individual) is more than $25,000. Combined income is defined as your adjusted gross income + Nontaxable interest plus 1/2 of your Social Security benefits. If you file a joint return, you may have to pay taxes if you and your spouse have a combined income that is more than $32,000. If you see this scenario in your future, it may be in your best interest to consider a state with low income tax rates (Pennsylvania, Arizona, or New Mexico for instance) or no income tax such as Florida, Nevada, Alaska, or Washington state.
2. Income Tax on Retirement Income

Income tax on pension income varies for each state. Some states, including Pennsylvania and Mississippi, do not tax it at all. In other states a portion of pension income is exempt, and still other states tax pension income in its entirety. Remember however, that state tax laws, like federal tax laws are always changing. Call if you have any questions about tax law changes in your state.
3. Tax on Social Security

In 2016, thirteen states tax social security income in addition to taxing social security income at the federal level. Among them are Colorado, Connecticut, Montana, New Mexico, Vermont, and West Virginia.
4. State and Local Property Taxes

Despite a decline in property values, property taxes have not decreased for most homeowners. Some states however, offer property tax exemptions to retirees who are homeowners and renters. Again, this varies by individual state. Please consult us if you have any questions about your state or the state you are planning to move to.
5. State and Local Sales Taxes

State and local sales taxes may or may not be a factor in the overall decision about where you decide to retire, but keep in mind that only five states, Alaska, Delaware, Montana, New Hampshire, and Oregon do not impose any sales or use tax.
6. Estate Taxes

Estate tax may or may not matter, depending on your estate and whether you care about what happens to your estate after you die. Like other state taxes, estate tax varies depending on which state you reside in. In eighteen states, there is a tax on estates below the federal threshold amount ($5.45 million in 2016, increasing to $5.50 million in 2017). Two states, Delaware and Hawaii use the same threshold amount as the IRS when figuring federal estate tax, and many states have no estate tax whatsoever including North Carolina (repealed in 2013), Kansas, Oklahoma, and Arizona.
So what’s the bottom line? When it comes to retirees, relocating, and taxes there are a number of factors to consider–including the overall tax burden. And, as you’ve read here, not all states are created equal. If you’re thinking about retiring to another state, please consult us first. We’ll help you figure out which state is best for your particular circumstances.

Reminder: College Tax Credits for 2016
With another school year in full swing, now is a good time for parents and students to see if they qualify for either of two college tax credits or other education-related tax benefits when they file their 2016 federal income tax returns next year.
American Opportunity Tax Credit or Lifetime Learning Credit. In general, the American Opportunity Tax Credit or Lifetime Learning Credit is available to taxpayers who pay qualifying expenses for an eligible student. Eligible students include the taxpayer, spouse, and dependents. The American Opportunity Tax Credit provides a credit for each eligible student, while the Lifetime Learning Credit provides a maximum credit per tax return.
Though a taxpayer often qualifies for both of these credits, he or she can only claim one of them for a particular student in a particular year. To claim these credits on their tax return, the taxpayer must file Form 1040 or 1040A and complete Form 8863, Education Credits.
The credits apply to eligible students enrolled in an eligible college, university or vocational school, including both nonprofit and for-profit institutions. The credits are subject to income limits that could reduce the amount taxpayers can claim on their tax return.
Normally, a student will receive a Form 1098-T from their institution by Jan. 31, 2017. This form shows information about tuition paid or billed along with other information. However, amounts shown on this form may differ from amounts taxpayers are eligible to claim for these tax credits.
Many of those eligible for the American Opportunity Tax Credit qualify for the maximum annual credit of $2,500 per student. Students can claim this credit for qualified education expenses paid during the entire tax year for a certain number of years:
The credit is only available for four tax years per eligible student.
The credit is available only if the student has not completed the first four years of post-secondary education before 2016.
Here are some more key features of the credit:
Qualified education expenses are amounts paid for tuition, fees and other related expenses for an eligible student. Other expenses, such as room and board, are not qualified expenses.
The credit equals 100 percent of the first $2,000 spent and 25 percent of the next $2,000. That means the full $2,500 credit may be available to a taxpayer who pays $4,000 or more in qualified expenses for an eligible student.
Forty percent of the American Opportunity Tax Credit is refundable. This means that even people who owe no tax can get a payment of up to $1,000 for each eligible student.
The full credit can only be claimed by taxpayers whose modified adjusted gross income (MAGI) is $80,000 or less. For married couples filing a joint return, the limit is $160,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $180,000 or more and singles, heads of household and some widows and widowers whose MAGI is $90,000 or more.
Lifetime Learning Credit. The Lifetime Learning Credit of up to $2,000 per tax return is available for both graduate and undergraduate students. Unlike the American Opportunity Tax Credit, the limit on the Lifetime Learning Credit applies to each tax return, rather than to each student. Also, the Lifetime Learning Credit does not provide a benefit to people who owe no tax.
Though the half-time student requirement does not apply to the lifetime learning credit, the course of study must be either part of a post-secondary degree program or taken by the student to maintain or improve job skills. Other features of the credit include:
Tuition and fees required for enrollment or attendance qualify as do other fees required for the course. Additional expenses do not.
The credit equals 20 percent of the amount spent on eligible expenses across all students on the return. That means the full $2,000 credit is only available to a taxpayer who pays $10,000 or more in qualifying tuition and fees and has sufficient tax liability.
Income limits are lower than under the American Opportunity Tax Credit. For 2016, the full credit can be claimed by taxpayers whose MAGI is $55,000 or less. For married couples filing a joint return, the limit is $111,000. The credit is phased out for taxpayers with incomes above these levels. No credit can be claimed by joint filers whose MAGI is $131,000 or more and singles, heads of household and some widows and widowers whose MAGI is $65,000 or more.
Eligible parents and students can get the benefit of these credits during the year by having less tax taken out of their paychecks. They can do this by filling out a new Form W-4 with their employer to claim additional withholding allowances.
There are a variety of other education-related tax benefits that can help many taxpayers. They include:
Scholarship and fellowship grants–generally tax-free if used to pay for tuition, required enrollment fees, books and other course materials, but taxable if used for room, board, research, travel or other expenses.
Tuition and fees deduction claimed on Form 8917–for some, a worthwhile alternative to the American Opportunity Tax Credit or Lifetime Learning Credit.
Student loan interest deduction of up to $2,500 per year.
Savings bonds used to pay for college–though income limits apply, interest is usually tax-free if bonds were purchased after 1989 by a taxpayer who, at time of purchase, was at least 24 years old.
Qualified tuition programs, also called 529 plans, used by many families to prepay or save for a child’s college education.
Taxpayers with qualifying children who are students up to age 24 may be able to claim a dependent exemption and the Earned Income Tax Credit.
If you have any questions about college tax credits, don’t hesitate to call.

Take Retirement Plan Distributions by December 31
Taxpayers born before July 1, 1946, generally must receive payments from their individual retirement arrangements (IRAs) and workplace retirement plans by December 31.
Known as required minimum distributions (RMDs), typically these distributions must be made by the end of the tax year, in this case, 2016. The required distribution rules apply to owners of traditional, Simplified Employee Pension (SEP) and Savings Incentive Match Plans for Employees (SIMPLE) IRAs but not Roth IRAs while the original owner is alive. They also apply to participants in various workplace retirement plans, including 401(k), 403(b) and 457(b) plans.
An IRA trustee must either report the amount of the RMD to the IRA owner or offer to calculate it for the owner. Often, the trustee shows the RMD amount on Form 5498 in Box 12b. For a 2016 RMD, this amount is on the 2015 Form 5498 normally issued to the owner during January 2016.
A special rule allows first-year recipients of these payments, those who reached age 70 1/2 during 2016, to wait until as late as April 1, 2017, to receive their first RMDs. What this means that those born after June 30, 1945, and before July 1, 1946, are eligible. The advantage of this special rule is that although payments made to these taxpayers in early 2017 can be counted toward their 2016 RMD, they are taxable in 2017.
The special April 1 deadline only applies to the RMD for the first year. For all subsequent years, the RMD must be made by December 31. So, for example, a taxpayer who turned 70 1/2 in 2015 (born after June 30, 1944, and before July 1, 1945) and received the first RMD (for 2015) on April 1, 2016, must still receive a second RMD (for 2016) by December 31, 2016.
The RMD for 2016 is based on the taxpayer’s life expectancy on December 31, 2016, and their account balance on December 31, 2015. The trustee reports the year-end account value to the IRA owner on Form 5498 in Box 5. For most taxpayers, the RMD is based on Table III (Uniform Lifetime Table) in IRS Publication 590-B. For a taxpayer who turned 72 in 2016, the required distribution would be based on a life expectancy of 25.6 years. A separate table, Table II, applies to a taxpayer whose spouse is more than ten years younger and is the taxpayer’s only beneficiary. If you need assistance with this, don’t hesitate to call.
Though the RMD rules are mandatory for all owners of traditional, SEP and SIMPLE IRAs and participants in workplace retirement plans, some people in workplace plans can wait longer to receive their RMDs. Usually, employees who are still working can, if their plan allows, wait until April 1 of the year after they retire to start receiving these distributions; however, there may be a tax on excess accumulations. Employees of public schools and certain tax-exempt organizations with 403(b) plan accruals before 1987 should check with their employer, plan administrator or provider to see how to treat these accruals.
For more information on RMDs, please call.

Plan now to take Advantage of Health FSAs in 2017
FSAs provide employees a way to use tax-free dollars to pay medical expenses not covered by other health plans. Because eligible employees need to decide how much to contribute through payroll deductions before the plan year begins, now is when many employers are offering employees the option to participate during the 2017 plan year.
Interested employees who wish to contribute to an FSA during the new year must make this choice again for 2017, even if they contributed in 2016. Self-employed individuals are not eligible.
An employee who chooses to participate can contribute up to $2,600 during the 2017 plan year (up from $2,550 in 2016). Amounts contributed are not subject to federal income tax, Social Security tax or Medicare tax. If the plan allows, the employer may also contribute to an employee’s FSA.
Throughout the year, employees can then use funds to pay qualified medical expenses not covered by their health plan, including co-pays, deductibles and a variety of medical products and services ranging from dental and vision care to eyeglasses and hearing aids. Interested employees should check with their employer for details about eligible expenses and claim procedures.
Under the use or lose provision, participating employees often must incur eligible expenses by the end of the plan year, or forfeit any unspent amounts. But under a special rule, employers may, if they choose, offer participating employees more time through either the carryover option or the grace period option.
Under the carryover option, an employee can carry over up to $500 of unused funds to the following plan year–for example, an employee with $500 of unspent funds at the end of 2017 would still have those funds available to use in 2018. Under the grace period option, an employee has until 2 1/2 months after the end of the plan year to incur eligible expenses–for example, March 15, 2018, for a plan year ending on Dec. 31, 2017. Employers can offer either option, but not both, or none at all.
Employers are not required to offer FSAs. Accordingly, interested employees should check with their employer to see if they offer an FSA. Please call if you have any questions about how FSA contributions affect your taxes.

Retirement Contributions Limits Announced for 2017
Cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2017 have been announced by the IRS. Here are the highlights:
In general, income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs, and to claim the saver’s credit all increased for 2017. Contribution limits for SIMPLE retirement accounts for self-employed persons remains unchanged at $12,500.
Traditional IRAs
Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions; however, if during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply. Here are the phase-out ranges for 2017:
For single taxpayers covered by a workplace retirement plan, the phase-out range is $62,000 to $72,000, up from $61,000 to $71,000.
For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $99,000 to $119,000, up from $98,000 to $118,000.
For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $186,000 and $196,000, up from $184,000 and $194,000.
For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Roth IRAs
The income phase-out range for taxpayers making contributions to a Roth IRA is $118,000 to $133,000 for singles and heads of household, up from $117,000 to $132,000. For married couples filing jointly, the income phase-out range is $186,000 to $196,000, up from $184,000 to $194,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.
Saver’s Credit
The income limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $62,000 for married couples filing jointly, up from $61,500; $46,500 for heads of household, up from $46,125; and $31,000 for singles and married individuals filing separately, up from $30,750.
Limitations that remain unchanged from 2016
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $18,000.
The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $6,000.
The limit on annual contributions to an IRA remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
If you have any questions about retirement contributions or pension plans, don’t hesitate to contact the office.

Seasonal Workers and the Health Care Law
Businesses often need to hire workers on a seasonal or part-time basis. For example, some businesses may need seasonal help for holidays, harvest seasons, commercial fishing, or sporting events. Whether you are getting paid or paying someone else, questions often arise over whether these seasonal workers affect employers with regard to the Affordable Care Act (ACA).
For the purposes of the Affordable Care Act the size of an employer is determined by the number of employees. As such, employer-offered benefits, opportunities, and requirements are dependent upon your organization’s size and the applicable rules. For instance, if you have at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, you are an ALE (Applicable Large Employer) for the current calendar year.
If you hire seasonal or holiday workers, you should know how these employees are counted under the health care law:
A seasonal worker is generally defined for this purpose as an employee who performs labor or services on a seasonal basis, generally for not more than four months (or 120 days). Retail workers employed exclusively during holiday seasons, for example, are seasonal workers.
In contrast, a seasonal employee is an employee who is hired into a position for which the customary annual employment is six months or less, where the term “customary employment” refers to an employee who typically works each calendar year in approximately the same part of the year, such as summer or winter.
The terms seasonal worker and seasonal employee are both used in the employer shared responsibility provisions but in two different contexts. Only the term seasonal worker is relevant for determining whether an employer is an applicable large employer subject to the employer shared responsibility provisions; however, there is an exception for seasonal workers:
Exception: If your workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year, and the employees in excess of 50 during that period were seasonal workers, your organization is not considered an ALE.
For additional information on hiring seasonal workers and how it affects the employer shared responsibility provisions please contact the office.

Creating Reports in QuickBooks, Part 2
QuickBooks is a faster, safer, and more accurate method of doing your bookkeeping than using a manual system is. Still, you may occasionally tire of your daily tasks and wonder what all of these forms and records mean in terms of your overall financial health–and how to create the reports that go along with them.
The actual mechanics of creating reports in QuickBooks are fairly straightforward. You can go to the Report Center, make a selection, maybe change the date range, and voila! Your company’s related data appears in neat rows and columns.

Figure 1: You may be able to get some of the information you need by simply changing the date range on a QuickBooks report.

But perhaps you to see different columns than what QuickBooks’ report templates include. Furthermore, you might want to filter your output for more meaningful, targeted analysis. Some of QuickBooks’ reports–particularly those included in the categories Company & Financial and Accountant & Taxes–can be a little advanced for the average small businessperson with little bookkeeping experience. Yes, they’re easy to run, but they are also difficult to understand so you may need the assistance of a professional.
We strongly encourage you to let an experienced QuickBooks professional run these more complex reports, such as the Balance Sheet, for you on a regular (monthly or quarterly) basis. Balance sheets provide valuable insight when making critical business decisions.
But don’t be discouraged from working with QuickBooks’ reports on your own either. Some of the easier reports are A/R Aging Detail (to keep an eye on past-due payments) and Unpaid Bills Detail (to see where you stand with your own financial obligations).
Make Reports Yours
Sometimes, QuickBooks’ own report output is a bit too broad for your needs. So the program provides sophisticated customization options. You can work with these to narrow down and shape the data that appears in your reports.
First, columns. Building reports from scratch would be too time-consuming and frustrating for you to do all of the time. And it’s unnecessary since QuickBooks provides templates for its reports, sets of columns and data filters that would serve some businesses well, but which can be modified by each user.
Try this. Open the Profit & Loss Detail report and click on the Customize Report button in the upper left corner. You will see that the Modify Report window opens.

Figure 2: QuickBooks lets you modify the columns that appear in reports.

The Display tab should be highlighted. Change the Report Date Range if necessary by clicking on the down arrow to the right of the Dates field. You can also create your own custom date range by deleting the dates in the From and To fields and entering new ones, or by clicking on the small calendar icons and clicking on the desired dates.
Warning: Do you understand the difference between running reports as either Accrual or Cash? This is important. If you don’t, please call the office to go over some basic report concepts.

It’s easy to change the default columns that appear in reports. You can either enter a column label in the Search Columns box or scroll down the list of all possible labels. Click in the space in front of the ones you want to include, and click on existing check marks if you want to remove those labels. You can also designate a sort order, either Ascending or Descending.
If you want to work with the Advanced options, or if you come across a Display screen that puzzles you (depending on the report, you may have some complex choices). Please call for assistance if you need it.

Figure 3: QuickBooks report Filters screen

When you’re done here, click on the Filters tab. This is a powerful element of QuickBooks report customization. You can limit your report output to data that meet certain criteria. In the image above, for example, you can tell QuickBooks which subset of Accounts should be included. Click on the Billing Status filter, and you can limit the results to Any, Not Billable, Unbilled, or Billed. You get the idea.
You can apply multiple filters to a report. Every one that you select will appear in the list under Current Filter Choices.
The Header/Footer and Fonts & Numbers tabs are primarily cosmetic options you can explore on your own, but as you can see from this brief overview there are many ways to use QuickBooks reports as is or customized for your particular situation. We recommend that you work with reports regularly, both on your own and with a QuickBooks professional. The insight they provide can help your company grow and flourish instead of just getting by.

Tax Due Dates for December 2016
December 12
Employees who work for tips – If you received $20 or more in tips during November, report them to your employer. You can use Form 4070.

December 15
Corporations – Deposit the fourth installment of estimated income tax for 2016. A worksheet, Form 1120-W, is available to help you estimate your tax for the year.

Employers Social Security, Medicare, and withheld income tax – If the monthly deposit rule applies, deposit the tax for payments in November.

Employers Nonpayroll withholding – If the monthly deposit rule applies, deposit the tax for payments in November.

Copyright © 2016 All materials contained in this document are protected by U.S. and internationalcopyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.

Rex Crandell Firm
3000 Citrus Circle, #207
Walnut Creek, CA, 94598
Phone: (925) 934-6320
RexCrandell@astound.net

This video presents a few of the more important tax law changes that will need to be reflected on your 2016 individual IRS Form 1040  that you will be filing before April 15th 2017.

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A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell 
Rex L. Crandell. CPA, Esq.

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FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)

3000 Citrus Circle

Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]

(925) 934-6320
————————-
San Francisco Office

425 Market Street

22nd Floor [ Click For MAP TO OUR OFFICE]

(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net

Internet: http://www.rexcrandell.com

Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com


Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell 
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
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IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

__________________________________

DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.

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Any accounting, business, legal or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.
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Congressman Trey Goudy roasts IRS Inspecter General for Wasting Taxpayer’s Money on a Sham “Training Event” that was more like an expensive employees vacation that anything of value.

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USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell 
Rex L. Crandell. CPA, Esq.

image002

================================

FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)

3000 Citrus Circle

Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]

(925) 934-6320
————————-
San Francisco Office

425 Market Street

22nd Floor [ Click For MAP TO OUR OFFICE]

(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net

Internet: http://www.rexcrandell.com

Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com

Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell 
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
.

.

IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
.

.

This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

__________________________________

DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.

image

======================
Any accounting, business, legal or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation.

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http://wp.me/p3FJXF-cgM
Kongressabgeordneter Trey Goudy brütet IRS Inspektor-General für das Vergeuden des Steuerzahlers Geld auf einem Sham “Trainings-Ereignis”, das mehr wie ein teurer Angestellter Urlaub war, der etwas von Wert ist.

/ S / Rex L Crandell.

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http://wp.me/p3FJXF-cgM
El congresista Trey Goudy asa al IRS Inspecter General por desperdiciar el dinero del contribuyente en un “evento de entrenamiento” que se parecía más a unas vacaciones costosas para los empleados que cualquier cosa de valor.

/ S / Rex L Crandell

El Fin.

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Kids say the darndest things.
Watch “When I Grow Up, I want to be a Tax Accountant – Before and After” on Rex AdventureTube.
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The IRS installed a new treadmill for the public to get in shape and see what it feels like to be an unsuspecting taxpayer trying to handle their own tax audit without professional representation. Guess this fellow got off to a bumpy start. But he did learn several things that he might not want to do again in the future. (Ya think?)
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USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

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FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
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San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
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E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
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IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

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DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.
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http://www.TAXREXCRANDELL.COM/newsletter.php
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Newsletter
Our regularly updated newsletter provides timely articles to help you achieve your financial goals. Please come back and visit often. 

April 2015

Feature Articles:
>>>Five Last Minute Tax Tips for 2015
>>>What Income is Taxable?
>>>Lost Your Job? There Could Be Tax Consequences
>>>Tax Tips
>>>Estimated Tax Payments – Q & A
>>>Good Records Key to Claiming Gifts to Charity
>>>Simplified Option for the Home Office Deduction
>>>Top Ten Facts about Adoption Tax Benefits

RSS Feed

Tax Due Dates

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

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Five Last Minute Tax Tips for 2015
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Are you one of the millions of Americans who hasn’t filed (or even started) your taxes yet? With the April 15 tax filing deadline less than a week away, here is some last minute tax advice for you.

1. Stop Procrastinating. Resist the temptation to put off your taxes until the very last minute. It takes time to prepare accurate returns and additional information may be needed from you to complete your tax return.

2. Include All Income. If you had a side job in addition to a regular job, you might have received a Form 1099-MISC. Make sure you include that income when you file your tax return because you may owe additional taxes on it. If you forget to include it you may be liable for penalties and interest on the unreported income.

3. File on Time or Request an Extension.This year’s tax deadline is April 15. If the clock runs out, you can get an automatic six-month extension, bringing the filing date to October 15, 2015. You should keep in mind, however, that filing the extension itself does not give you more time to pay any taxes due. You will still owe interest on any amount not paid by the April deadline, plus a late-payment penalty if you have not paid at least 90 percent of your total tax by that date.

Call the office if you need to file an extension or file for late-filing penalty relief.

4. Don’t Panic If You Can’t Pay. If you can’t immediately pay the taxes you owe, there are several alternatives. You can apply for an IRS installment agreement, suggesting your own monthly payment amount and due date, and getting a reduced late payment penalty rate. You also have various options for charging your balance on a credit card. There is no IRS fee for credit card payments, but processing companies generally charge a convenience fee. Electronic filers with a balance due can file early and authorize the government’s financial agent to take the money directly from their checking or savings account on the April due date, with no fee.

5. Sign and Double Check Your Return. The IRS will not process tax returns that aren’t signed, so make sure that you sign and date your return. You should also double check your social security number, as well as any electronic payment or direct deposit numbers, and finally, make sure that your filing status is correct.

Remember: To avoid delays, get your tax documents to the office as soon as you can.

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What Income is Taxable?
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Are you wondering if there’s a hard and fast rule about what income is taxable and what income is not taxable? The quick answer is that all income is taxable unless the law specifically excludes it. But as you might have guessed, there’s more to it than that.

Taxable income includes any money you receive, such as wages and tips, but it can also include non-cash income from property or services. For example, both parties in a barter exchange must include the fair market value of goods or services received as income on their tax return.
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Nontaxable Income

Here are some types of income that are usually not taxable:

Gifts and inheritances, Child support payments, Welfare benefits, Damage awards for physical injury or sickness, Cash rebates from a dealer or manufacturer for an item you buy, Reimbursements for qualified adoption expenses.

In addition, some types of income are not taxable except under certain conditions, including:

Life insurance proceeds paid to you because of the death of the insured person are usually not taxable. However, if you redeem a life insurance policy for cash, any amount that is more than the cost of the policy is taxable.Income from a qualified scholarship is normally not taxable. This means that amounts you use for certain costs, such as tuition and required books, are not taxable. However, amounts you use for room and board are taxable.If you received a state or local income tax refund, the amount may be taxable. You should have received a 2014 Form 1099-G from the agency that made the payment to you. If you didn’t get it by mail, the agency may have provided the form electronically. Contact them to find out how to get the form. Be sure to report any taxable refund you received even if you did not receive Form 1099-G.
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Important Reminders about Tip Income
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If you get tips on the job from customers, that income is subject to taxes. Here’s what you should keep in mind when it comes to receiving tips on the job:

Tips are taxable. 
You must pay federal income tax on any tips you receive. The value of non-cash tips, such as tickets, passes or other items of value are also subject to income tax.Include all tips on your income tax return.You must include the total of all tips you received during the year on your income tax return. This includes tips directly from customers, tips added to credit cards and your share of tips received under a tip-splitting agreement with other employees.Report tips to your employer. If you receive $20 or more in tips in any one month, from any one job, you must report your tips for that month to your employer. The report should only include cash, check, debit and credit card tips you receive. Your employer is required to withhold federal income, Social Security and Medicare taxes on the reported tips. Do not report the value of any noncash tips to your employer.Keep a daily log of tips. Use the Employee’s Daily Record of Tips and Report to Employer (IRS Publication 1244), to record your tips.

Bartering Income is Taxable

Bartering is the trading of one product or service for another. Small businesses sometimes barter to get products or services they need. For example, a plumber might trade plumbing work with a dentist for dental services. Typically, there is no exchange of cash.

If you barter, the value of products or services from bartering is taxable income. Here are four facts about bartering that you should be aware of:

1. Barter exchanges. A barter exchange is an organized marketplace where members barter products or services. Some exchanges operate out of an office and others over the Internet. All barter exchanges are required to issue Form 1099-B, Proceeds from Broker and Barter Exchange Transactions. The exchange must give a copy of the form to its members who barter and file a copy with the IRS.

2. Bartering income. Barter and trade dollars are the same as real dollars for tax purposes and must be reported on a tax return. Both parties must report as income the fair market value of the product or service they get.

3. Tax implications. Bartering is taxable in the year it occurs. The tax rules may vary based on the type of bartering that takes place. Barterers may owe income taxes, self-employment taxes, employment taxes or excise taxes on their bartering income.

4. Reporting rules. How you report bartering on a tax return varies. If you are in a trade or business, you normally report it on Form 1040, Schedule C, Profit or Loss from Business.

If you have any questions about taxable and nontaxable income, don’t hesitate to contact the office.

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Lost Your Job? There Could Be Tax Consequences
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Given current economic conditions, you may be faced with tax questions surrounding a job loss and unemployment issues. Here are some answers:

Q: What if I received unemployment compensation in 2014?

A: Unemployment compensation you received under the unemployment compensation laws of the United States or of a state are considered taxable income and must be reported on your federal tax return. If you received unemployment compensation, you should receive Form 1099-G showing the amount you were paid and any federal income tax you elected to have withheld.

Types of unemployment benefits include:

Benefits paid by a state or the District of Columbia from the Federal Unemployment Trust Fund, Railroad unemployment compensation benefits, Disability payments from a government program paid as a substitute for unemployment compensation, Trade re-adjustment allowances under the Trade Act of 1974, Unemployment assistance under the Disaster Relief and Emergency Assistance Act

You must also include benefits from regular union dues paid to you as an unemployed member of a union in your income. However, other rules apply if you contribute to a special union fund and your contributions are not deductible. If this applies to you, only include in income the amount you received from the fund that is more than your contributions.

Q: Can I have federal income tax withheld?

Yes, you can choose to have federal income tax withheld from your unemployment benefits by filling out Form W-4V, Voluntary Withholding Request. If you complete the form and give it to the paying office, they will withhold tax at 10 percent of your payments. If you choose not to have tax withheld, you may have to make estimated tax payments throughout the year.

Q: What if I lost my job?

A: The loss of a job may create new tax issues. Severance pay and unemployment compensation are taxable. Payments for any accumulated vacation or sick time are also taxable. You should ensure that enough taxes are withheld from these payments or make estimated tax payments to avoid a big bill at tax time. Public assistance and food stamps are not taxable.

Q: What if I searched for a job?

A: You may be able to deduct certain expenses you incurred while looking for a new job, even if you did not get a new job. Expenses include travel, resume preparation, and outplacement agency fees. Moving costs for a new job at least 50 miles away from your home may also be deductible.

Q: What if my employer went out of business or into bankruptcy?

A: Your employer must provide you with a 2014 W-2 Form showing your wages and withholdings by February 2, 2015. You should keep up-to-date records or pay stubs until you receive your Form W-2. If your employer or its representatives fail to provide you with a Form W-2, contact the IRS. They can help by providing you with a substitute Form W-2. If your employer liquidated your 401(k) plan, you have 60 days to roll it over into another qualified retirement plan or IRA.

If you have experienced a job loss and have questions, please call. You need to be prepared for the tax consequences.

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Estimated Tax Payments – Q & A
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Question: How do I know if I have to file quarterly individual estimated tax payments?

Answer: If you owed additional tax for the prior tax year, you may have to make estimated tax payments for the current tax year.

If you are filing as a sole proprietor, partner, S corporation shareholder, and/or a self-employed individual, you generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return.

If you are filing as a corporation you generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return.

If you had a tax liability for the prior year, you may have to pay estimated tax for the current year; however, if you receive salaries and wages, you can avoid having to pay estimated tax by asking your employer to withhold more tax from your earnings.

There are special rules for farmers, fishermen, certain household employers, and certain higher taxpayers.

The first estimated payment for 2015 is due April 15, 2015. Contact us if you are unsure whether you need to make an estimated tax payment.

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Good Records Key to Claiming Gifts to Charity
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Keeping good records is key to qualifying for the full charitable contribution deduction allowed by law. In particular, this includes ensuring that they have received required statements for two contribution categories
A. each gift of at least $250 and
B. donations of vehicles. Therefore, taxpayers planning to claim charitable donations should make sure they have the records they need before filing their 2014 tax returns.

First, to claim a charitable contribution deduction, donors must get a written acknowledgment from the charity for all contributions of $250 or more. This includes gifts of both cash and property. For donations of property, the acknowledgment must include, among other things, a description of the items contributed.

In addition, the law requires that taxpayers have all acknowledgements in hand before filing their tax return. These acknowledgments are not filed with the return but must be retained by the taxpayer along with other tax records.
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Second, special reporting requirements generally apply to vehicle donations, and taxpayers wishing to claim these donations must attach any required documents to their tax return. The deduction for a car, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value is more than $500. Form 1098-C or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return.

Only donations to eligible organizations are tax-deductible so taxpayers must also be sure that any charity they are giving to is a qualified organization. Select Check, a searchable online tool available on IRS.gov, lists most organizations that are eligible to receive deductible contributions. In addition, churches, synagogues, temples, mosques and government agencies are eligible even if they are not listed in the tool’s database.

Only taxpayers who itemize their deductions on Form 1040 Schedule A can claim gifts to charity. Thus, taxpayers who choose the standard deduction cannot deduct their charitable contributions. This includes anyone who files a short form (Form 1040A or 1040EZ) does not get to itemize their deductions separately..

A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceed the standard deduction. Use the 2014 Form 1040, Schedule A to determine whether itemizing is better than claiming the standard deduction.

Besides Schedule A, taxpayers who give property to charity usually must attach a special form for reporting these noncash contributions. If the amount of the deduction for all noncash contributions is over $500, a properly completed IRS Form 8283 is required.
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Additionally, there are special rules that apply to charitable contributions of used clothing and household items, monetary donations, and year-end gifts. These include:
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Rules for Charitable Contributions of Clothing and Household Items
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This includes furniture, furnishings, electronics, appliances and linens. Clothing and household items donated to charity generally must be in good used condition or better to be tax-deductible. Clothing or household item for which a taxpayer claims a deduction of over $500 does not have to meet this standard if the taxpayer includes a qualified appraisal of the item with the return.

Guidelines for Monetary Donations

A taxpayer must have a bank record or a written statement from the charity in order to deduct any donation of money, regardless of the amount. The record must show the name of the charity and the date and amount of the contribution. Bank records include canceled checks, and bank, credit union and credit card statements. Bank or credit union statements should show the name of the charity, the date, and the amount paid. Credit card statements should show the name of the charity, the date, and the transaction posting date. Donations of money include those made in cash or by check, electronic funds transfer, credit card and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, a Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Year-End Gifts

Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of 2014 count for 2014, even if the credit card bill isn’t paid until 2015. Also, checks count for 2014 as long as they were mailed in 2014.
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Need help? Call the office today to set up an appointment with a tax and accounting specialist.
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Simplified Option for the Home Office Deduction
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If you’re one of the more than 3.4 million taxpayers claimed deductions for business use of a home (commonly referred to as the home office deduction), don’t forget about the simplified option that is now available for taxpayers.

The optional deduction is capped at $1,500 per year based on $5 a square foot for up to 300 square feet. It is expected to reduce the paperwork and recordkeeping burden on small businesses by an estimated 1.6 million hours annually.

Currently, taxpayers claiming the home office deduction are generally required to fill out a 43-line form ( IRS Form 8829) often with complex calculations of allocated expenses, depreciation and carryovers of unused deductions. Taxpayers claiming the optional deduction will complete a significantly simplified form.
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Though homeowners using the new option cannot depreciate the portion of their home used in a trade or business, they can claim allowable mortgage interest, real estate taxes and casualty losses on the home as itemized deductions on Schedule A. These deductions need not be allocated between personal and business use, as is required under the regular method. Business expenses unrelated to the home, such as advertising, supplies and wages paid to employees are still fully deductible.
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Current restrictions on the home office deduction, such as the requirement that a home office must be used regularly and exclusively for business and the limit tied to the income derived from the particular business, still apply under the deductability limitation rules.
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If you need more details about the new simplified home office deduction for tax year 2014 (or 2015 or 2016), don’t hesitate to call.

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Top Ten Facts about Adoption Tax Benefits
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If you adopted or tried to adopt a child in 2014, you may qualify for a tax credit. If your employer helped pay for the costs of an adoption, you may be able to exclude some of your income from tax. Here are ten things you should know about adoption tax benefits.

1. Credit or Exclusion. The credit is non-refundable. This means that the credit may reduce your tax to zero. If the credit is more than your tax, you can’t get any additional amount as a refund. If your employer helped pay for the adoption through a written qualified adoption assistance program, you may qualify to exclude that amount from tax.

2. Maximum Benefit. The maximum adoption tax credit and exclusion for 2014 is $13,190 per child.

3. Credit Carryover. If your credit is more than your tax, you can carry any unused credit forward. This means that if you have an unused credit in 2014, you can use it to reduce your taxes for 2015. You can do this for up to five years, or until you fully use the credit, whichever comes first.

4. Eligible Child. An eligible child is under age 18. This rule does not apply to persons who are physically or mentally unable to care for themselves.

5. Qualified Expenses.  Adoption expenses must be directly related to the adoption of the child and be reasonable and necessary. Types of expenses that can qualify include adoption fees, court costs, attorney fees, and travel.

6. Domestic Adoptions. For domestic adoptions (adoption of a U.S. child), qualified adoption expenses paid before the year the adoption becomes final are allowable as a credit for the tax year following the year of payment (even if the adoption is never finalized).

7. Foreign Adoptions. For foreign adoptions (adoption of an eligible child who is not yet a citizen or resident of the U.S.), qualified adoption expenses paid before and during the year are allowable as a credit for the year when it becomes final.

8. Special Needs Child. If you adopted an eligible U.S. child with special needs and the adoption is final, a special rule applies. You may be able to take the tax credit even if you didn’t pay any qualified adoption expenses.

9. No Double Benefit.  Depending on the adoption’s cost, you may be able to claim both the tax credit and the exclusion. However, you can’t claim both a credit and exclusion for the same expenses. This rule prevents you from claiming both tax benefits for the same expense.

10. Income Limits. The credit and exclusion are subject to income limitations. The limits may reduce or eliminate the amount you can claim depending on the amount of your income.

Questions? Contact the office today. Help is just a phone call away.

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Tax Due Dates for April 2015
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April 10

Employees who work for tips – If you received $20 or more in tips during February, report them to your employer. You can use Form 4070.

April 15

Individuals – File an income tax return for 2014 (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic 6-month extension of time to file the return, file IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return or you can get an extension by phone if you pay part or all of your estimate of income tax due with a credit card. Then file Form 1040, 1040A, or 1040EZ by October 15.

Household Employers – If you paid cash wages of $1,900 or more in 2014 to a household employee, file Schedule H (Form 1040) with your income tax return and report any employment taxes. Report any federal unemployment (FUTA) tax on Schedule H if you paid total cash wages of $1,000 or more in any calendar quarter of 2013 or 2014 to household employees. Also report any income tax you withheld for your household employees.

Individuals – If you are not paying your 2015 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2015 estimated tax. Use IRS Form 1040-ES and CA FTB Form 540-ES.

Partnerships – File a 2014 calendar year return (IRS Form 1065, with the related Schedule K-1 for each owner). Provide each partner with a copy of Schedule K-1 (IRS Form 1065), Partner’s Share of Income, Credits, Deductions, etc., or a substitute Schedule K-1. If you want an automatic 5-month extension of time to file the return and provide Schedule K-1 or a substitute Schedule K-1, file IRS Form 7004. Then file IRS Form 1065 by September 15.

Electing Large Partnerships – File a 2014 calendar year return (IRS Form 1065-B). If you want an automatic 6-month extension of time to file the return, file IRS Form 7004. Then file IRS Form 1065-B by October 15. March 16 was the due date for furnishing the Schedules K-1 to the partners.

Corporations – Deposit the first installment of estimated income tax for 2015. A worksheet, IRS Form 1120-W, is available to help you estimate your tax for the year.

Employers – Nonpayroll withholding. If the monthly deposit rule applies, deposit the tax for payments in March.

Employers – Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in March.

April 30

Employees – Social Security, Medicare, and withheld income tax. File IRS Form 941 for the first quarter of 2015. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until May 11 to file the return.
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Copyright © 2015  All materials contained in this document are protected by U.S. and international copyright laws. All other trade names, trademarks, registered trademarks and service marks are the property of their respective owners.
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Rex Crandell Firm
3000 Citrus Circle, #207
Walnut Creek, CA, 94598
Phone: (925) 934-6320
Phone: 1 (800) 464-6595
RexCrandell@astound.net
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USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

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FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
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IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

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DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.
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NEW TAXES and PENALTIES.
Check out the new Affordable Care Act Tax (ACA) Features. Expect to answer questions about your health coverage when preparing your 2014 personal income tax returns before April 15th 2015 (soon).
 
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Update:

Each year the Health Insurance Marketplace has an open enrollment period.  The open enrollment period to purchase health care insurance for 2015 runs from Nov. 15, 2014, through Feb. 15, 2015. Contact the Marketplace at HealthCare.gov to enroll and to get information about financial assistance to purchase health care coverage for you and your family.

On Sept. 10, 2014, IRS Commissioner John A. Koskinen testified before the House Ways and Means Committee’s subcommittee on Health. The commissioner’s testimony focused on the IRS’s role in the implementation of the Affordable Care Act and what the IRS is doing to ensure that taxpayers know how provisions of the law may affect them.

Effect of Sequestration on Small Business Health Care Tax Credit – Tax-Exempt Employers Only
Due to sequestration, refund payments issued to certain small tax-exempt employers claiming the refundable portion of the Small Business Health Care Tax Credit under Internal Revenue Code section 45R, are subject to sequestration. This means that refund payments processed on or after Oct. 1, 2014, and on or before Sept. 30, 2015, issued to a tax-exempt taxpayer claiming the Small Business Health Care Tax Credit under section 45R will be reduced by the fiscal year 2015 sequestration rate of 7.3 percent (regardless of when the original or amended tax return was received by the IRS). The sequestration reduction rate will be applied unless and until a law is enacted that cancels or otherwise impacts the sequester, at which time the sequestration reduction rate is subject to change.  Sequestration only affects the refundable portion of the Small Business Health Care Tax Credit filed by tax-exempt employers.  Sequestration does not impact Small Business Health Care Tax Credit claims by non-tax-exempt employers, as the credit is not a refundable credit for non-tax-exempt employers.

Affected taxpayers will be notified through correspondence that a portion of their requested payment was subject to the sequester reduction and the amount.
IRC §7216, Disclosure or Use of Information by Tax Return Preparers
Final Treasury Regulations on rules and consent requirements relating to the disclosure or use of tax return information by tax return preparers became effective Dec. 28, 2012. For additional information about how these apply to services and education related to the Affordable Care Act, please see our questions and answers. 

Medical Loss Ratio (MLR)
Beginning in 2011, insurance companies are required to spend a specified percentage of premium dollars on medical care and quality improvement activities, meeting a medical loss ratio (MLR) standard. Insurance companies that are not meeting the MLR standard will be required to provide rebates to their consumers beginning in 2012. For information on the federal tax consequences to an insurance company that pays a MLR rebate and an individual policyholder who receives a MLR rebate, as well as information on the federal tax consequences to employees if a MLR rebate stems from a group health insurance policy, see our frequently asked questions.
Reporting Employer Provided Health Coverage in Form W-2
The Affordable Care Act requires employers to report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement, in Box 12, using Code DD. Many employers are eligible for transition relief for tax-year 2012 and beyond, until the IRS issues final guidance for this reporting requirement.
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The amount reported does not affect tax liability, as the value of the employer excludible contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable. This reporting is for informational purposes only, to show employees the value of their health care benefits.

More information about the reporting can be found on Form W-2 Reporting of Employer-Sponsored Health Coverage.

Net Investment Income Tax
A new Net Investment Income Tax went into effect on Jan. 1, 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. On Nov. 26, 2013, the IRS and the Treasury Department issued final regulations, which provide guidance on the general application of the Net Investment Income Tax and the computation of Net Investment Income. In addition, on Nov. 26, 2013, the IRS and the Treasury Department issued proposed regulations on the computation of net investment income as it relates to certain specific types of property. Comments may be submitted electronically, by mail or hand delivered to the IRS. For additional information on the Net Investment Income Tax, see our questions and answers.
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Additional Medicare Tax
A new Additional Medicare Tax went into effect on Jan. 1, 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year. On Nov. 26, 2013, the IRS and the Department of the Treasury issued final regulations which provide guidance for employers and individuals relating to the implementation of Additional Medicare Tax, including the requirement to withhold Additional Medicare Tax on certain wages and compensation, the requirement to report Additional Medicare Tax, and the employer process for adjusting underpayments and overpayments of Additional Medicare Tax. In addition, the regulations provide guidance on the employer and individual processes for filing a claim for refund for an overpayment of Additional Medicare Tax.
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Minimum Value.
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On April 26, 2012, the Department of the Treasury and IRS issued Notice 2012-31, which provides information and requested public comment on an approach to determining whether an eligible employer-sponsored health plan provides minimum value. Additionally, on April 30, 2013, the Treasury Department and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. Starting in 2014, whether such a plan provides minimum value will be relevant to eligibility for the premium tax credit and application of the employer shared responsibility payment. 
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On November 4, 2014, the Department of the Treasury and IRS issued Notice 2014-69, which provides additional guidance regarding whether an employer-sponsored plan provides minimum value coverage if the plan fails to substantially cover in-patient hospitalization services or physician services.
Information Reporting on Health Coverage by Employers.
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On March 5, 2014, the Department of the Treasury and IRS issued final regulations on employer health insurance coverage information reporting. The information reporting relates to health insurance coverage that is offered by certain employers, referred to as applicable large employers, and reporting is to be provided by each member of an applicable large employer. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45, announcing transition relief for 2014 from this annual information reporting. For additional information on the employer health insurance coverage information reporting see our questions and answers and this fact sheet issued by the U.S. Department of the Treasury. 
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On July 24, 2014, the IRS released draft forms that employers will use to report on health coverage that they offer to their employees. In accordance with the IRS’ normal process, these draft forms are being provided to help stakeholders, including employers, tax professionals and software providers, prepare for these new reporting provisions and to invite comments from them. On Aug. 28, 2014, draft instructions relating to the forms were posted to IRS.gov. Both the forms and instructions will be finalized later this year.
Information Reporting on Health Coverage by Insurers
On March 5, 2014, the Department of the Treasury and IRS issued final regulations on minimum essential coverage information reporting. The information reporting is to be provided by health insurance issuers, certain sponsors of self-insured plans, government agencies and certain other parties that provide health coverage. Additionally, on July 9, 2013, the Department of the Treasury and the IRS issued Notice 2013-45 announcing transition relief for 2014 from this annual information reporting.
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On July 24, 2014, the IRS released draft forms that insurers will use to report on health coverage that they provide for individuals that they cover. In accordance with the IRS’ normal process, these draft forms are being provided to help stakeholders, including insurers, employers, tax professionals and software providers, prepare for these new reporting provisions and to invite comments from them. On August 28, 2014, draft instructions relating to the forms were posted to IRS.gov. Both the forms and instructions will be finalized later this year.
Disclosure of Return Information.
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On Aug. 13, 2013, the Department of the Treasury and the IRS issued final regulations with rules for disclosure of return information to the Department of Health and Human Services that will be used to carry out eligibility determinations for advance payments of the premium tax credit, Medicaid and other health insurance affordability programs.
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Small Business Health Care Tax Credit:
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This credit helps small businesses and small tax-exempt organizations afford the cost of covering their employees and is specifically targeted for those with low- and moderate-income workers. The credit is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. On June 26, 2014, the Department of Treasury and the IRS issued final regulations on the credit, which include information on the requirement to purchase health insurance coverage through the Small Business Health Options Program (SHOP) Marketplace. The final regulations are applicable for taxable years beginning in or after 2014. Additionally, IRS Notice 2014-06 provides transition relief for employers in certain counties in Washington and Wisconsin with no SHOP coverage available. For taxable years beginning in 2010 through 2013, taxpayers can rely on the guidance in the proposed regulations, Notice 2010-44 and Notice 2010-82. Learn more by browsing our page on the Small Business Health Care Tax Credit for Small Employers.
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Application of the Affordable Care Act to Health Reimbursement Arrangements, Health Flexible Spending Arrangements and Certain Other Employer Healthcare Arrangements
The Affordable Care Act’s market reforms apply to group health plans. On Sept. 13, 2013, the IRS issued Notice 2013-54, which explains how the Affordable Care Act’s market reforms apply to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. The notice also provides guidance on employee assistance programs or EAPs and on section 125(f)(3), which prohibits the use of pre-tax employee contributions to cafeteria plans to purchase coverage on an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The notice applies for plan years beginning on and after Jan. 1, 2014, but taxpayers may apply the guidance provided in the notice for all prior periods.  
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DOL has issued a notice in substantially identical form to Notice 2013-54, DOL Technical Release 2013-03. On Jan. 24, 2013, DOL and HHS issued FAQs that address the application of the Affordable Care Act to HRAs. On Nov. 6, 2014, DOL issued additional FAQs that address the application of the Affordable Care Act to HRAs and other payment arrangements.
Additional information is also available regarding consequences to the employer if the employer does not establish a health insurance plan for its own employees, but reimburses those employees for premiums they pay for health insurance (either through a qualified health plan in the Marketplace or outside the Marketplace).
On Jan. 9, 2014, DOL and HHS issued FAQs that addressed, among other things, future rules relating to excepted benefits.
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Health Flexible Spending Arrangements
Effective Jan. 1, 2011, the cost of an over-the-counter medicine or drug cannot be reimbursed from Flexible Spending Arrangements (FSAs) or health reimbursement arrangements unless a prescription is obtained. The change does not affect insulin, even if purchased without a prescription, or other health care expenses such as medical devices, eye glasses, contact lenses, co-pays and deductibles. This standard applies only to purchases made on or after Jan. 1, 2011. A similar rule went into effect on Jan. 1, 2011, for Health Savings Accounts (HSAs), and Archer Medical Savings Accounts (Archer MSAs). Employers and employees should take these changes into account as they make health benefit decisions. For more information, see news release IR-2010-95, Notice 2010-59, Revenue Ruling 2010-23 and our questions and answers. FSA and HRA participants can continue using debit cards to buy prescribed over-the-counter medicines, if requirements are met. For more information, see news release IR-2010-128 and Notice 2011-5. Additionally, Notice 2013-57 provides information about the definition of preventive care for purposes of high deductible health plans associated with HSAs. 
In addition, starting in 2013, there are new rules about the amount that can be contributed to an FSA. Notice 2012-40 provides information about these rules and flexibility for employers applying the new rules. On Oct. 31, 2013, the Department of the Treasury and IRS issued Notice 2013-71, which provides information on a new $500 carryover option for employer-sponsored healthcare flexible spending arrangements. Learn more by reading the news release issued by the U.S. Department of the Treasury.
Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain health FSAs.   
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Medical Device Excise Tax
On Dec. 5, 2012, the IRS and the Department of the Treasury issued final regulations on the new 2.3-percent medical device excise tax (IRC §4191) that manufacturers and importers will pay on their sales of certain medical devices starting in 2013. On Dec. 5, 2012, the IRS and the Department of the Treasury also issued Notice 2012-77, which provides interim guidance on certain issues related to the medical device excise tax. Additional information is available on the Medical Device Excise Tax page and Medical Device Excise Tax FAQs on IRS.gov.
Changes to Itemized Deduction for Medical Expenses
Beginning Jan. 1, 2013, you can claim deductions for medical expenses not covered by your health insurance when they reach 10 percent of your adjusted gross income. This change affects your 2013 tax return that you will file in 2014. There is a temporary exemption from Jan. 1, 2013, to Dec. 31, 2016, for individuals age 65 and older and their spouses. For additional information, see our questions and answers.
Health Insurance Premium Tax Credit.
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Starting in 2014, individuals and families can take a new premium tax credit to help them afford health insurance coverage purchased through an Affordable Insurance Exchange (also known as a Health Insurance Marketplace). The premium tax credit is refundable so taxpayers who have little or no income tax liability can still benefit. The credit also can be paid in advance to a taxpayer’s insurance company to help cover the cost of premiums. On May 18, 2012, the Department of the Treasury and the IRS issued final regulations, which provide guidance for individuals who enroll in qualified health plans through Marketplaces and claim the premium tax credit, and for Marketplaces that make qualified health plans available to individuals and employers. On Jan. 30, 2013, the Department of the Treasury and IRS released final regulations on the premium tax credit affordability test for related individuals. On April 30, 2013, the Department of the Treasury and the IRS issued proposed regulations relating to minimum value of eligible employer-sponsored plans and other rules regarding the premium tax credit. On November 4, 2014, the Department of the Treasury and IRS issued Notice 2014-69, which provides additional guidance regarding whether an employer-sponsored plan provides minimum value coverage if the plan fails to substantially cover in-patient hospitalization services or physician services. Notice 2013-41, issued on June 26, 2013, provides information for determining whether or when individuals are considered eligible for coverage under certain Medicaid, Medicare, CHIP, TRICARE, student health or state high-risk pool programs. This determination will affect whether the individual is eligible for the premium tax credit. On November 7, 2014, the Department of the Treasury and IRS issued Notice 2014-71, which advises that an individual enrolled in a qualified health plan who becomes eligible for Medicaid coverage for pregnancy-related services that is minimum essential coverage, or for CHIP coverage based on pregnancy, is treated as eligible for minimum essential coverage under the Medicaid or CHIP coverage for purposes of the premium tax credit only if the individual enrolls in the coverage. On May 2, 2014, the Department of the Treasury and the IRS issued final regulations on the reporting requirements for Marketplaces. On July 24, 2014, the Department of the Treasury and the IRS issued proposed, temporary and final regulations providing further guidance on the premium tax credit. In particular, the regulations provide relief for certain victims of domestic abuse or spousal abandonment from the requirement to file jointly in order to claim the premium tax credit. In addition, the regulations provide special allocation rules for reconciling advance credit payments, address the indexing in future years of certain amounts used to determine eligibility for the credit and compute the credit, and provide rules for the coordination between the credit and the deduction under section 162(l) for health insurance costs of self-employed individuals. Rev. Proc. 2014-41, also released on July 24, 2014, provides methods for determining the section 162(l) deduction and the premium tax credit for health insurance costs of self-employed individuals who claim the deduction under section 162(l).
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Individual Shared Responsibility Provision
Starting in 2014, the individual shared responsibility provision calls for each individual to either have minimum essential coverage for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return. On June 26, 2013, the IRS released Notice 2013-42, which provides transition relief for employees eligible to enroll in a non-calendar year employer-sponsored health plan that begins in 2013 and ends in 2014. On Aug. 27, 2013, the Department of the Treasury and the IRS issued final regulations on the individual shared responsibility provision. On Jan. 23, 2014, the Department of the Treasury and the IRS issued proposed regulations addressing several issues that were identified in the preamble to the final regulations. On July 24, 2014, the IRS issued Rev. Proc. 2014-46, which provides the 2014 monthly national average premium for qualified health plans that have a bronze level of coverage. This amount is used to determine the maximum individual shared responsibility payment that may be due. On November 21, 2014, the Department of the Treasury and the IRS issued regulations finalizing the January 2014 proposed regulations. The final regulations address the treatment of health reimbursement arrangements, cafeteria plans, and wellness program incentives for purposes of determining the unaffordability exemption for individuals with offers of employer sponsored coverage.  The regulations also provide that certain limited benefit Medicaid and TRICARE coverage is not minimum essential coverage (Notice 2014-10, issued on Jan. 23, 2014, provides transition relief from the shared responsibility payment for months in 2014 in which individuals have this limited benefit coverage).  On November 21, 2014, the IRS issued Notice 2014-76, which identifies the hardship exemptions from the individual shared responsibility payment that a taxpayer may claim on a Federal income tax return without obtaining an exemption certification from a Health Insurance Marketplace. For additional information on the individual shared responsibility provision, see our ISRP page and questions and answers. Additional information on exemptions and minimum essential coverage is available in final regulations issued by the U.S. Department of Health & Human Services. 
Health Coverage for Older Children
Health coverage for an employee’s children under 27 years of age is now generally tax-free to the employee. This expanded health care tax benefit applies to various work place and retiree health plans. These changes immediately allow employers with cafeteria plans –– plans that allow employees to choose from a menu of tax-free benefit options and cash or taxable benefits –– to permit employees to begin making pre-tax contributions to pay for this expanded benefit. This also applies to self-employed individuals who qualify for the self-employed health insurance deduction on their federal income tax return. Learn more by reading our news release or this notice.
Excise Tax on Indoor Tanning Services
A 10-percent excise tax on indoor UV tanning services went into effect on July 1, 2010. Payments are made along with Form 720, Quarterly Federal Excise Tax Return. The tax doesn’t apply to phototherapy services performed by a licensed medical professional on his or her premises. There’s also an exception for certain physical fitness facilities that offer tanning as an incidental service to members without a separately identifiable fee. For more information on the tax and how it is administered, see the Indoor Tanning Services Tax Center.
Adoption Credit.

For tax years 2010 and 2011, the Affordable Care Act raised the maximum adoption credit per child and the credit was refundable. For more information related to the adoption credit for tax years 2010 and 2011, see our news release, tax tip, questions and answers, flyer, Notice 2010-66, Revenue Procedure 2010-31, Revenue Procedure 2010-35 and Revenue Procedure 2011-52.
For tax year 2012, the credit has reverted to being nonrefundable, with a maximum amount (dollar limitation) of $12,650 per child. If you adopted a child in 2012, see Tax Topic 607 for more information. 
Transitional Reinsurance Program.
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The ACA requires all health insurance issuers and self-insured group health plans to make contributions under the transitional Reinsurance Program to support payments to individual market issuers that cover high-cost individuals. For information on the tax treatment of contributions made under the Reinsurance Program, see our frequently asked questions.
Medicare Shared Savings Program.
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The Affordable Care Act establishes a Medicare shared savings program (MSSP) which encourages Accountable Care Organizations (ACOs) to facilitate cooperation among providers to improve the quality of care provided to Medicare beneficiaries and reduce unnecessary costs. More information can be found in Notice 2011-20, which solicited written comments regarding what additional guidance, if any, is needed for tax-exempt organizations participating in the MSSP through an ACO. This guidance also addresses the participation of tax-exempt organizations in non-MSSP activities through ACOs. Additional information on the MSSP is available on the Department of Health and Human Services website.
The Centers for Medicare and Medicaid Services has released final regulations describing the rules for the Shared Savings Program and accountable care organizations. Fact Sheet 2011-11 confirms that Notice 2011-20 continues to reflect IRS expectations regarding the Shared Savings Program and ACOs, and provides additional information for charitable organizations that may wish to participate. 
On October 24, 2014, the Department of the Treasury and the IRS issued Notice 2014-67, which describes the conditions under which a hospital or other health care facility with tax-exempt bonding authority may participate in an ACO without jeopardizing the tax-exempt status of the bonds financing that facility.
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Qualified Therapeutic Discovery Project Program
This program was designed to provide tax credits and grants to small firms that show significant potential to produce new and cost-saving therapies, support U.S. jobs and increase U.S. competitiveness. Applicants were required to have their research projects certified as eligible for the credit or grant. IRS guidance describes the application process.
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Submission of certification applications began June 21, 2010, and applications had to be postmarked no later than July 21, 2010, to be considered for the program. Applications that were postmarked by July 21, 2010, were reviewed by both the Department of Health and Human Services (HHS) and the IRS. All applicants were notified by letter dated October 29, 2010, advising whether or not the application for certification was approved. For those applications that were approved, the letter also provided the amount of the grant to be awarded or the tax credit the applicant was eligible to take.
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The IRS published the names of the applicants whose projects were approved as required by law. Listings of results are available by state.
Learn more by reading the IRS news release, the news release issued by the U.S. Department of the Treasury, the page on the HHS website and our questions and answers.
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Group Health Plan Requirements.
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The Affordable Care Act establishes a number of new requirements for group health plans. Interim guidance on changes to the nondiscrimination requirements for group health plans can be found in Notice 2011-1, which provides that employers will not be subject to penalties until after additional guidance is issued. Additionally, TD 9575 and REG-140038-10, issued by DOL, HHS and IRS, provide information on the summary of benefits and coverage and the uniform glossary. Notice 2012-59 provides guidance to group health plans on the waiting periods they may apply before coverage starts. On June 20, 2014, HHS, DOL and IRS issued final regulations on the ninety-day waiting period limitation.. 
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More information on group health plan requirements is available on the websites of the Departments of Health and Human Services and Labor and in additional guidance.
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Further, Notice 2013-54 provides guidance regarding the application of the Affordable Care Act’s market reforms to certain types of group health plans, including health reimbursement arrangements (HRAs), health flexible spending arrangements (health FSAs) and certain other employer healthcare arrangements, including arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy. 
Annual Fee on Health Insurance Providers
The Affordable Care Act created an annual fee on certain health insurance providers beginning in 2014. On Nov. 26, 2013, the Treasury Department and IRS issued final regulations on this annual fee imposed on covered entities engaged in the business of providing health insurance for United States health risks. On Aug. 12, 2014, the Treasury Department and IRS issued Notice 2014-47 clarifying the scope of the term “covered entity” and the fact that reporting is not required in 2014 for an entity that would not qualify as a covered entity, even if it is a member of a controlled group that is a covered entity.
For additional information visit our Affordable Care Act Provision 9010 – Health Insurance Providers Fee page. 
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Tax-Exempt 501(c)(29) Qualified Nonprofit Health Insurance Issuers
The Affordable Care Act requires the Department of Health and Human Services (HHS) to establish the Consumer Operated and Oriented Plan program (CO-OP program). It also provides for tax exemption for recipients of CO-OP program grants and loans that meet additional requirements under section 501(c)(29). IRS Notice 2011-23 outlined the requirements for tax exemption under section 501(c)(29) and solicited written comments regarding these requirements as well as the application process. Revenue Procedure 2012-11, issued in conjunction with temporary regulations and a notice of proposed rulemaking, sets out the procedures for issuing determination letters and rulings on the exempt status of organizations applying for recognition of exemption under 501(c)(29).
An overview of the CO-OP program is available on the HHS website.
Medicare Part D Coverage Gap “donut hole” Rebate
The Affordable Care Act provides a one-time $250 rebate in 2010 to assist Medicare Part D recipients who have reached their Medicare drug plan’s coverage gap. This payment is not taxable. This payment is not made by the IRS. More information can be found at http://www.medicare.gov.
Additional Requirements for Tax-Exempt Hospitals
The Affordable Care Act added new requirements for charitable hospitals (see Notice 2010-39 and Notice 2011-52). On June 26, 2012, the IRS published proposed regulations that provide information on the requirements for charitable hospitals relating to financial assistance and emergency medical care policies, charges for emergency or medically necessary care provided to individuals eligible for financial assistance, and billing and collections. On April 5, 2013, the IRS published proposed regulations on the requirement that charitable hospitals conduct community health needs assessments (CHNAs) and adopt implementation strategies at least once every three years. These proposed regulations also discuss the related excise tax and reporting requirements for charitable hospitals and the consequences for failure to satisfy the section 501(r) requirements. On August 15, 2013, the IRS published temporary regulations and proposed regulations providing information on which form to use when making an excise tax payment for failure to meet the CHNA requirements and the due date for filing the form. Notice 2014-2 confirms that hospital organizations can rely on proposed regulations under section 501(r) of the Internal Revenue Code published on June 26, 2012 and April 5, 2013, pending the publication of final regulations or other applicable guidance. Notice 2014-3 contains a proposed revenue procedure that provides correction and disclosure procedures under which certain failures to meet the requirements of section 501(r) will be excused.
Annual Fee on Branded Prescription Pharmaceutical Manufacturers and Importers
The Affordable Care Act created an annual fee payable beginning in 2011 by certain manufacturers and importers of brand name pharmaceuticals. On July 24, 2014, the IRS issued final and temporary regulations on the branded prescription drug fee. The regulations describe the rules related to the fee, including how it is computed and how it is paid. Also on July 24, 2014, the IRS issued Notice 2014-42, which provides additional guidance on the branded prescription drug fee for the 2015 fee year and subsequent fee years. For information on the fee for the 2012, 2013 and 2014 fee years, see Notice 2011-92 , Notice 2012-74 and Notice 2013-51. 
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For additional information, visit our Affordable Care Act Provision 9008 Branded Prescription Drug Fee page.
Modification of Section 833 Treatment of Certain Health Organizations.
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The Affordable Care Act amended section 833 of the Code, which provides special rules for the taxation of Blue Cross and Blue Shield organizations and certain other organizations that provide health insurance. IRS Notice 2010-79 provides transitional relief and interim guidance on the computation of an organization’s taxpayer’s Medical Loss Ratio (MLR) for purposes of section 833, the consequences of nonapplication and changes in accounting method. Notice 2011-04 provides additional information and the procedures for qualifying organizations to obtain automatic consent to change its method of accounting for unearned premiums. Notice 2012-37 extends the transitional relief and interim guidance provided in Notice 2010-79 for another year to any taxable year beginning in 2012 and the first taxable year beginning after Dec. 31, 2012. 
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On January 6, 2014, the IRS issued final regulations that describe how the MLR for purposes of section 833 is computed.
Limitation on Deduction for Compensation Paid by Certain Health Insurance Providers (amended section 162(m)).
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The Affordable Care Act amended section 162(m) of the Code to limit the compensation deduction available to certain health insurance providers. The amendment goes into effect for taxable years beginning after Dec. 31, 2012, but may affect deferred compensation attributable to services performed in a taxable year beginning after Dec. 31, 2009. On Sept. 18, 2014, the Treasury Department and IRS issued final regulations on this provision. 
Employer Shared Responsibility Payment
The Affordable Care Act establishes that certain employers must offer health coverage to their full-time employees or a shared responsibility payment may apply. On Feb. 10, 2014, the Department of the Treasury and the IRS issued final regulations on the Employer Shared Responsibility provisions. For additional information on the Employer Shared Responsibility provisions and the proposed regulations, see our questions and answers. On July 9, 2013, the Department of the Treasury and the IRS announced transition relief from the Employer Shared Responsibility provisions for 2014. For more information, please see Notice 2013-45. For additional transition relief generally applicable to 2015, see the preamble to the final regulations. On Sept. 18, 2014, the Department of the Treasury and the IRS issued Notice 2014-49, which provides guidance on how to apply the look-back measurement method in situations in which the measurement period applicable to an employee changes. 
Patient-Centered Outcomes Research Institute Fee
The Affordable Care Act established the Patient-Centered Outcomes Research Institute. Funded by the Patient-Centered Outcomes Research Trust Fund, the institute will help patients, clinicians, purchasers and policy-makers make informed health decisions by advancing clinical effectiveness research. The trust fund will be funded in part by fees paid by issuers of certain health insurance policies and sponsors of certain self-insured health plans.

The IRS and the Department of the Treasury have issued final regulations (PDF) on this fee. On Sept. 18, 2014, the IRS issued Notice 2014-56, which establishes the applicable dollar amount for policy and plan years ending after Sept. 30, 2014, and before Oct. 1, 2015. Additional information on the fee is available on the PCORI page and in our questions and answers and chart summary. Form 720, Quarterly Federal Excise Tax Return, was revised to provide for the reporting and payment of the PCORI fee. Although Form 720 is a quarterly return, for PCORI, Form 720 is filed annually only, by July 31. If for any reason you need to make corrections after filing your annual Form 720 for PCORI, write “Amended PCORI” at the top of the second filing.
Retiree Drug Subsidies
Under § 139A of the Internal Revenue Code, certain special subsidy payments for retiree drug coverage made under the Social Security Act  are not included in the gross income of plan sponsors. Plan sponsors receive these retiree drug subsidy payments based on the allowable retiree costs for certain qualified retiree prescription drug plans. For taxable years beginning on or after Jan. 1, 2013, new statutory rules affect the ability of plan sponsors to deduct costs that are reimbursed through these subsidies. See our questions and answers for more information.
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Page Last Reviewed or Updated: 10-Dec-2014.
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A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
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…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

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Watch “Webinar: Tax Planning for Small Business” on TaxOnlineNewsReportTube
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Watch “2014 Tax Update” on TaxOnlineNewsReportTube
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USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

image002

============================================

FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
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IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

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DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.
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Watch Income Tax English Translator George Carlin Explain “How to Read and Apply Complex Govt. Tax Rules into Plane Everyday English That Everyone Can Understand” on Online Tax News Report – RexTube.
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Federal Baffel-Gab Verbal Obsfucation Training Using Flying Vocabulary Examples. FAA and IRS Butchering English Language Made Easy. [Live from NYC ’92]: http://youtu.be/46fOtLfYC4Q
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USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

image002

============================================

FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
.

.

IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

__________________________________

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DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.
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Watch IRS Commissioner: What the IRS is Doing to Bring Propaganda Education To Taxpayers Before All the Whining About the Affordable Care Act (O. B. Care) Hits the Public in the Face on Your 2014 Income Tax Returns from Online Tax News Report, TaxTube…:
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http://youtu.be/PbbepRPHtMs
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When the public finally understands the penalties, red tape entanglements, that IRS will be in charge of their medical services, and that the new system is designed to hide the fact the Feds are bankrupting Medicare and hiding it under a new program where everyone has to pay for medicare a second time, you are going to hear the complaints grow exponentially.
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You can blame the legislators, but not the Commissioner of the IRS, because he had nothing to do with the statute being enacted into law.
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Ladies and gentlemen, introducing…
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The Honorable, John Koskinen, Commissioner of the United States of America, Internal Revenue Service.

John Koskinen is the 48th IRS Commissioner. As Commissioner, he presides over the nation’s tax system, which collects approximately $2.4 trillion in tax revenue each year. This revenue funds most government operations and public services. Mr. Koskinen manages an agency of about 90,000 employees and a budget of approximately $11 billion.

In his role leading the IRS, Mr. Koskinen is working to ensure that the agency maintains an appropriate balance between taxpayer service and tax enforcement and administers the tax code with fairness and integrity.

Prior to his appointment, Mr. Koskinen served as the non-executive chairman of Freddie Mac from 2008 to 2012 and its acting chief executive officer in 2009. Previously, Mr. Koskinen served as President of the U.S. Soccer Foundation, Deputy Mayor and City Administrator of Washington D.C., Assistant to the President and Chair of the President’s Council on Year 2000 Conversion and Deputy Director for Management at the Office of Management and Budget. Mr. Koskinen also spent 21 years in the private sector in various leadership positions with the Palmieri Company, including President and Chief Executive Officer, helping to turn around large, troubled organizations. He began his career clerking for Chief Judge David L. Bazelon of the DC Circuit Court of Appeals in 1965, practiced law with the firm of Gibson, Dunn and Crutcher and served as Assistant to the Deputy Executive Director of the National Advisory Commission on Civil Disorders, also known as the Kerner Commission. Mr. Koskinen also served as Legislative Assistant to New York Mayor John Lindsay and Administrative Assistant to Sen. Abraham Ribicoff of Connecticut.

Mr. Koskinen holds a Law Degree from Yale University School of Law and a Bachelor’s Degree from Duke University. He also studied International Law for one year in Cambridge, England. He and his wife Patricia have two grown children and live in Washington, DC.

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====================================================

USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

image002

============================================

FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
.

.

IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
.

.

.

.

This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

.

.
.

.

.

.

.

.
STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

__________________________________

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.

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.
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DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.
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  Before we get started here, readers should be aware that TIGTA is a seperate governmental agency authorized by Congress to perform audits on IRS systems and procedures to help Congress and the IRS improve its mission for tax administration in the United States of America.  TIGTA is not under the control or supervision of the IRS. This report is reprinted for third party distribution by a non-governmental news and information services provider. Now for the news…
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Treasury Inspector General for Tax Administration

Office of Audit

THE INFORMATION REPORTING AND DOCUMENT MATCHING 
CASE MANAGEMENT SYSTEM COULD NOT BE DEPLOYED

Issued on September 29, 2014

Highlights

Highlights of Report Number: 2014-20-088 to the Internal Revenue Service Chief Technology Officer.

IMPACT ON TAXPAYERS
image

In January 2012, the IRS issued a Tax Gap report estimating taxes owed but not paid at about $450 billion.  A significant portion of this is attributed to noncompliance from businesses and corporations that underreport income.  The IRS has long concluded that compliance is higher when income is subject to third-party reporting or withholding. 
image

Congress enacted Information Reporting and Document Matching (IRDM) legislation to narrow the Tax Gap by requiring third-party payors, such as banks and brokerage firms, to submit information returns to the IRS reporting income earned by businesses on merchant payment card and cost basis for securities transactions.  The IRS deployed four of five IRDM information technology projects to assimilate and correlate data submitted on filed business tax returns to information returns and select individual sole proprietor and business returns for examinations.
image

WHY TIGTA DID THE AUDIT

The overall objective was to determine how system development risks for the IRDM Case Management (IRDMCM) System were being mitigated and whether established business and information technology requirements to improve compliance and reduce the Tax Gap were adequately addressed.  Specifically, TIGTA evaluated requirements management, change management, and the controls over System Acceptability Testing.

WHAT TIGTA FOUND

The IRDMCM System requirements were not sufficient.  User Acceptance Testing generated a high number of problem tickets, 50 percent of which were to clarify requirements and business rules.  After a year of User Acceptance Testing, IRS officials acknowledged that the IRDMCM System could not effectively process business cases containing underreported income and could not be deployed into the IRS production environment.  In the absence of an IRDMCM System, thousands of business taxpayer cases containing underreported income could not be processed.  The IRS spent approximately $8.6 million from Fiscal Years 2009 through 2013 developing the IRDMCM System.  Based on available data from the IRS, TIGTA estimated that unprocessed 2011 cases could have potentially resulted in assessed taxes of $54.9 million.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Chief Technology Officer should ensure that:  1) requirements management processes for future IRDMCM System development include using Business Process Modeling to specify well-defined requirements; 2) IRDMCM System requirements are completely identified; 3) case management capabilities of Entellitrak® are thoroughly assessed, and IRS Information Technology organization officials act promptly to implement an IRDM case management application to avoid losing significant tax assessment revenue in the future.

The IRS agreed with two of the recommendations, but did not provide an implementation date for one of its corrective actions.  The IRS partially agreed with the third recommendation, stating that while it is currently determining how the Entellitrak case management solution can meet business needs, significant budget constraints could affect future work on the IRDMCM System.
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READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

http://www.treas.gov/tigta/auditreports/2014reports/201420088fr.html.

Phone Number: 202-622-6500

Website: http://www.treasury.gov/tigta

 
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Update your subscriptions. If you have questions or problems with the subscription service, please visit subscriberhelp.govdelivery.com.

This service is provided to you at no charge byTreasury Inspector General for Tax Administration.

 
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The original message was sent using GovDelivery, on behalf of: Treasury Inspector General for Tax Administration · 1125 15th St NW · Washington, DC 20005 · (800) 366-4484
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====================================================

USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

image002

============================================

FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
.

.

IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
.

.

.

.

This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

.

.
.

.

.

.

.

.
STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

__________________________________

.

.

.

.
.
DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.
.

.

.

.

.

.

====================================================

USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

image002

============================================

FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
.

.

IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
.

.

.

.

This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

.

.
.

.

.

.

.

.
STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

__________________________________

.

.

.

.
.
DISCLAIMER: The sponsors and editors of this privately owned website are not goverment employees and do not represent nor speak for any governmental agency.
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The following is the full unabridged TIGTA report.
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TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

The Information Reporting and Document Matching Case 
Management System Could Not Be Deployed

 

 

 

September 29, 2014

 

Reference Number:  2014-20-088

 

 

 

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

 

 

Phone Number  /  202-622-6500

E-mail Address / TIGTACommunications@tigta.treas.gov

Website           /  http://www.treasury.gov/tigta

 

 

HIGHLIGHTS

THE INFORMATION REPORTING AND DOCUMENT MATCHING CASE 
MANAGEMENT SYSTEM COULD NOT BE DEPLOYED

Highlights

Final Report issued on September29, 2014

Highlights of Reference Number:  2014-20-088 to the Internal Revenue Service Chief Technology Officer.

IMPACT ON TAXPAYERS

In January 2012, the IRS issued a Tax Gap report estimating taxes owed but not paid at about $450 billion.  A significant portion of this is attributed to noncompliance from businesses and corporations that underreport income.  The IRS has long concluded that compliance is higher when income is subject to third-party reporting or withholding.  Congress enacted Information Reporting and Document Matching (IRDM) legislation to narrow the Tax Gap by requiring third-party payors, such as banks and brokerage firms, to submit information returns to the IRS reporting income earned by businesses on merchant payment card and cost basis for securities transactions.  The IRS deployed four of five IRDM information technology projects to assimilate and correlate data submitted on filed business tax returns to information returns and select individual sole proprietor and business returns for examination.  

WHY TIGTA DID THE AUDIT

The overall objective was to determine how system development risks for the IRDM Case Management (IRDMCM) System were being mitigated and whether established business and information technology requirements to improve compliance and reduce the Tax Gap were adequately addressed.  Specifically, TIGTA evaluated requirements management, change management, and the controls over System Acceptability Testing.

WHAT TIGTA FOUND

The IRDMCM System requirements were not sufficient.  User Acceptance Testing generated a high number of problem tickets, 50 percent of which were to clarify requirements and business rules.  After a year of User Acceptance Testing, IRS officials acknowledged that the IRDMCM System could not effectively process business cases containing underreported income and could not be deployed into the IRS production environment.  In the absence of an IRDMCM System, thousands of business taxpayer cases containing underreported income could not be processed.  The IRS spent approximately 
$8.6 million from Fiscal Years 2009 through 2013 developing the IRDMCM System.  Based on available data from the IRS, TIGTA estimated that unprocessed 2011 cases could have potentially resulted in assessed taxes of $54.9 million.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Chief Technology Officer should ensure that:  1) requirements management processes for future IRDMCM System development include using Business Process Modeling to specify well-defined requirements; 2) IRDMCM System requirements are completely identified; 3) case management capabilities of Entellitrak® are thoroughly assessed, and IRS Information Technology organization officials act promptly to implement an IRDM case management application to avoid losing significant tax assessment revenue in the future.

The IRS agreed with two of the recommendations, but did not provide an implementation date for one of its corrective actions.  The IRS partially agreed with the third recommendation, stating that while it is currently determining how the Entellitrak case management solution can meet business needs, significant budget constraints could affect future work on the IRDMCM System. 

 

September 29, 2014

 

 

MEMORANDUM FOR CHIEF TECHNOLOGY OFFICER

 

FROM:                       Michael E. McKenney /s/ Michael E. McKenney

                                  Deputy Inspector General for Audit

 

SUBJECT:                 Final Audit Report – TheInformation Reporting and Document Matching Case Management System Could Not Be Deployed (Audit # 201420012)

 

This report presents the results of our review of the Information Reporting and Document Matching Case Management System to determine whether system development risks were being mitigated and whether established business and information technology requirements to improve compliance and reduce the Tax Gap were adequately addressed.  This audit is included in our Fiscal Year 2014 Annual Audit Plan and addresses the four major management challenges of Modernization, Tax Compliance Initiatives, Fraudulent Claims and Improper Payments, and Achieving Program Efficiencies and Cost Savings.

Management’s complete response to the draft report is included as Appendix VI.

Copies of this report are also being sent to the Internal Revenue Service managers affected by the report recommendations.  If you have any questions, please contact me or Danny Verneuille, Acting Assistant Inspector General for Audit (Security and Information Technology Services).

 

 

Table of Contents

 

Background

Results of Review

Insufficient Requirements and Failure to Pass User Acceptance Testing Contributed to Unsuccessful Deployment for the Information Reporting and Document Matching Case Management System

Recommendations 1 through 3:

Appendices

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Outcome Measures

Appendix V – Glossary of Terms

Appendix VI – Management’s Response to the Draft Report

 

Abbreviations

 

IRDM

Information Reporting and Document Matching

IRDMCM

Information Reporting and Document Matching Case Management

IRM

Internal Revenue Manual

IRS

Internal Revenue Service

IT

Information Technology

SAT

System Acceptability Testing

SB/SE

Small Business/Self-Employed

TY

Tax Year

UAT

User Acceptance Testing

 

Background

 

Since 2009, Congress has enacted a number of provisions in the Internal Revenue Code to enhance business tax filing accuracy and compliance by automating the matching of data reported on the legislatively mandated information returns to the data submitted on filed business tax returns.

According to the Internal Revenue Service’s (IRS) latest estimate (January 2012), the Tax Gap,[1] which is the amount of tax liability owed by taxpayers that is not paid on time, is about $450 billion.  A significant portion of this is attributed to noncompliance from businesses and corporations that underreport income.  The IRS has long concluded that compliance is higher when income is subject to third-party reporting or withholding.  Congress enacted Information Reporting and Document Matching (IRDM) legislation to narrow the Tax Gap by increasing the voluntary compliance of business taxpayers through information reporting.

Since Fiscal Year 2009, Congress has enacted a number of provisions in the Internal Revenue Code to enhance business tax filing accuracy and compliance by automating the matching of data reported on the legislatively mandated information returns to the data submitted on filed business tax returns.  Under the legislation, third-party payors[2] will submit the information returns to the IRS showing the amount of revenue earned by the businesses.  The IRS established the IRDM Program to create the infrastructure needed to implement legislation related to third-party reporting to help reduce the Tax Gap.  The IRDM legislation requires new information reporting to the IRS for three issues that contribute to the Tax Gap.  The three transaction types involve merchant payment cards, cost basis for securities, and certain Government payments.  The following provides information on the transaction types and effective dates: 

Merchant Payment Cards – The merchant payment card transactions under Regulation 6050W apply to tax returns for calendar years beginning after December 31, 2010.  The two types of merchant card transactions are third-party network transactions and payment card transactions.

1.     Third-Party Network Transactions:  A third-party network transaction involves a third‑party settlement organization.  A third-party settlement organization is the organization that has the contractual obligation to make payments to participating payees in a third-party payment network.  The most common example of a third-party settlement organization is an online auction-payment facilitator, which operates as an intermediary between buyer and seller by transferring funds between accounts in settlement of an auction/purchase.  Third-party settlement organizations charge sellers a fee for facilitating the transaction.  Under the new reporting requirements, settlement organizations must complete Form 1099-K, Payment Card and Third Party Network Transactions, when there are more than 200 transactions and payments to payees exceed $20,000.

2.     Payment Card Transactions:  A payment card transaction involves a bank or other entity that makes a payment to a merchant or other business, in settlement of payment card transactions, which includes credit cards, debit cards, and stored-value cards.  The entity that transfers funds to the merchant’s account is responsible for preparing and furnishing Form 1099-K to the merchant and to the IRS.

Cost Basis for Securities –Starting in Tax Year (TY) 2011, brokers began reporting on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, the adjusted basis and whether any gain or loss from the sale of “covered securities” is classified as short term or long term.  The IRS revised the Form 1099-B to include new boxes beginning with TY 2011.  The term “covered securities” generally means shares of corporate stock acquired on or after January 1, 2011.  The Department of the Treasury and the IRS issued a notice advising that implementation of the security transactions was delayed until January 1, 2014.  At the time of our audit, the IRS had not initiated any system development efforts related to the cost basis for securities. 

Certain Government Payments– In May 2011, the IRS initially delayed the 3 percent withholding requirement until after December 21, 2012.  Subsequently, after repeated momentum to repeal the withholding requirement, on November 21, 2011, President Obama signed the Three Percent Withholding Repeal and Job Creation Act[3] into law.  It repeals the requirement, originally created under the Tax Increase Prevention and Reconciliation Act of 2005,[4]for the Government to withhold 3 percent of certain payments to contractors. 

Implementation of the IRDM Program involves five system development projects.  In IRDM Release 1, four of the five projects have been deployed as follows:

1.     Data Assimilation:  Assimilation identifies the link between tax forms and information returns filed for the same taxpayer to identify potential underreporter cases.  The project groups them into specific categories to support IRS compliance programs associated with merchant payment cards and securities cost basis transactions.  (Deployed)

2.     Data Correlation:  Correlation matches tax return and information return data and applies business rules to identify potential underreporter cases for use in the IRDM case selection process.  After case selection, data correlation builds a complete case record for analysis by a tax examiner to support IRS compliance programs associated with merchant payment cards and securities cost basis transactions.  (Deployed)

3.     Business Master File Analytics:  Analytics provides IRS users with the ability to define and execute logic for the intelligent selection of business taxpayer case inventory to ensure that cases selected result in the largest financial return.  (Deployed)

4.     Case Inventory Selection and Analytics:  The IRDM Program primarily involves business transactions but does include individual transactions when individuals are self-employed and report their business transactions on their individual tax returns.  The IRDM Case Inventory Selection and Analytics Project provides IRS users with the ability to define and execute logic for the intelligent selection of individual taxpayer case inventory and creates an analytical environment that offers a greater ability to evaluate case data to improve the selection of cases to be worked.  The individual transactions are processed by the Automated Underreporter System.  (Deployed)

5.     Case Management (IRDMCM):  The case management system enables IRS tax examiners to manage and work business cases selected through the IRDM Business Master File Analytics Project with identified discrepancies that could potentially affect tax liabilities on business tax returns.  The IRDMCM System manages selected potential underreporter business cases as the cases are being worked by Small Business/Self‑Employed (SB/SE) Division tax examiners.  During Fiscal Years 2009 to 2013, the IRS spent $8,620,851 on the development of the IRDMCM System.  (Not Deployed)

Figure 1 provides a graphic of the IRDM Program showing data assimilation, data correlation, analytics, case selection, and case management processing.

Figure 1:  IRDM Program Graphic

Figure 1 was removed due to its size.  To see Figure 1, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

Source:  IRDM Solution Architecture Diagrams.

FTP – File Transfer Protocol; HTTPS – Hypertext Transfer Protocol Secure; 
ETL – Extraction/Transformation/Load; CRUD – Create, Read, Update, Delete; IPM – Integrated Production Model; IRMF- Information Returns Master File.

The IRDMCM Team planned to use the Waterfall systems development path to deliver the following functionality over four phases:

1.     Phase 1 Case Creation:  All the necessary case data are downloaded from the IRDM Data Correlation and the Taxpayer Information File system and loaded into the IRDMCM database.  All the cases are built into batches, which are then divided into work units to be analyzed by tax examiners.  Screening batches are requested by technical units to be worked.  It is the manager’s responsibility to monitor and control work coming through their units.  Several reports are available to monitor inventory and the volume of mail sent to taxpayers.

2.     Phase 2 Case Screening:  Tax examiners’ screening of cases includes verification of discrepancies, calculation of tax, preparation and issuance of notices and/or letters, and closure of cases with invalid discrepancies.  Tax examiners perform in-depth analysis of each case using various application screens.  A process code, which is a four-digit number used to identify the action taken on a case, is assigned to the case and resides in the IRDMCM System until it is uploaded to the Integrated Data Retrieval System.  If the identified income discrepancy amount is resolved, the case is generally closed with no taxpayer contact.  If the discrepancy was not included on the return or otherwise resolved, the taxpayer is sent either a letter indicating that a case has been closed, or a letter acknowledging that the taxpayer correspondence has been received and that further actions may be taken.

3.     Phase 3 Case Response:  The tax examiner reviews the cases based upon the taxpayer’s response or lack of response to the notice.  The tax examiner’s review of the response or if no response is received can lead to several actions:  a) recalculation of tax based on the taxpayer’s response to the notice; b) the case can be resolved and closed; c) a Statutory Notice of Deficiency can be issued; or d) additional tax can be assessed or the case can be transferred or referred to other units.

4.     Phase 4 Case Closure/Statutory Notice:  This final phase adds the issuance of and the resolution of any issues addressed in the Statutory Notice of Deficiency.  The response from the taxpayer may resolve the issues in the Statutory Notice of Deficiency.  The case is defaulted when the response from the taxpayer does not resolve the issue, if no response is received, if the statutory suspense period has expired, or if the notice was undeliverable and the IRS has no record of a better address.

The scope of our audit was limited to reviewing the system development activities of the IRDMCM Project.  Figure 2 presents a timeline of the IRDMCM System development activities.

Figure 2:  IRDMCM System Development Timeline

IRDMCM System Development Activity

Date

System Development Initiated for IRDMCM Release 1

April 2009

Requirements Baselined

July 2010

System Acceptability Testing (SAT) Release 1

September 2011 – January 2013

SAT Release 1.5

July 2012 – 
December 2013

Planned Initial Deployment Date

November 2012

User Acceptance Testing (UAT)

January 2013 – January 2014

IRDM Change Requests Added Critical Functionality as Release 1.5

May 2013 – 
August 2013

Development Halted

January 2014

Source:  The IRS IRDMCM Team.

The following groups and organizations share responsibilities for developing the IRDMCM System.

·       IRDM Executive Steering Committee is co-chaired by the IRS Chief Technology Officer and the SB/SE Division Commissioner.  

·       IRDM Governance Board reports to the IRDM Executive Steering Committee and is chaired jointly by the IRS Information Technology (IT) organization and the SB/SE Division.  Key representatives include the:

o   IRS IT organization Assistant Chief Information Officer, Applications Development.

o   IRS IT organization Deputy Assistant Chief Information Officer, Applications Development.

o   IRS IT organization Director, Applications Development, Compliance Domain.

o   SB/SE Division Director, Communications, Outreach, Systems, and Solutions.

o   SB/SE Division Director, Campus Compliance Services.

·       IRS SB/SE Division is the business owner of the IRDM Program.  

·       IRS IT organization Applications Development is responsible for building, testing, delivering, and maintaining integrated information applications systems, i.e., software solutions, to support IRS systems and the production environment. 

·       A contractor provided the IRS IT organization application development support, including architecture activities, Enterprise Life Cycle support, scheduling, weekly minutes, project status reports, and IRDM Program and Project documentation.

·       IRS IT organization Enterprise Services, Enterprise Systems Testing, was responsible for managing the SAT for the IRDM Program.

·       The IRS IT organization Enterprise Information Technology office, Program Management office, has an emphasis on major Business System Modernization programs as well as enterprise solutions for such services as case management.

This review was performed at the IRS IT organization facilities in the IRS Western Development Center in Ogden, Utah; the Headquarters in Washington, D.C.; and the New Carrollton Federal Building in Lanham, Maryland, during the period January through May 2014.  We conducted this performance audit in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective.  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective.  Detailed information on our audit objective, scope, and methodology is presented in Appendix I.  Major contributors to the report are listed in Appendix II.

 

Results of Review

 

Insufficient Requirements and Failure to Pass User Acceptance Testing Contributed to Unsuccessful Deployment for the Information Reporting and Document Matching Case Management System  

The process of requirements development is important to successfully describe the activities that go into specifying the required functionality and characteristics of the IRS’s business systems.[5]  Key activities include identifying, capturing, recording, refining, and approving requirements.  This process includes clarifying the needs of the customer and translating those needs into system specifications.  For IRS systems, the Business System Requirements Report is the main deliverable for documenting users’ requirements.  During the system development life cycle, the Business System Requirements Report becomes the approved requirements baseline and the respective Configuration Control Board needs to approve any changes to the baseline requirements.

Functional requirements involve the users’ interactions with the system and specify what the information system is expected to do – its functionality.  Section 4.1 of the Requirements Handbook describes the characteristics of well-written, valid, high-quality requirements.  The requirements should be clearly and properly stated, understandable, complete, state exactly one requirement, be specific enough to implement and test, and be verifiable.  Requirements must be specific enough for a design team to work on design activities. 

Our review identified three conditions that existed during the development of the IRDMCM System:  1) key baseline requirements were not sufficiently detailed; 2) all essential requirements were not included in the requirements baseline in July 2010; and 3) the IRDMCM System did not successfully pass the UAT. 

Key baseline requirements were not sufficiently detailed

Our review identified that 173 of approximately 4,010 approved baseline requirements in the Business System Requirements Report did not contain descriptions specifying required functionality for the IRDMCM System.  Based on our review of these 173 baseline requirements, we determined that they involved capabilities that are critical to protect and accurately process tax returns and make proper adjustments to tax accounts.  For example, the requirements affected tax calculations, system interfaces, encryption, batch processing, and tax notices to taxpayers.  The following examples detail two critical baseline functional requirements for the IRDMCM System that did not contain sufficient descriptions: 

·       Payer Agent – The Payer Agent file is a compilation of payer information return documents that have been verified as erroneously filed or processed.  During a tax examiner’s review of an underreporter case, the case analysis screen includes a Payer Agent Indicator that alerts the tax examiner that the Payer Agent file contains data for the information return in question.  The data presented include the payer’s name, the type of document, and a synopsis of the reporting problem.  If the tax examiner’s review of the data does not resolve the issue of underreported income, the tax examiner will continue normal processing of the case.

·       Compute Assessment – The Compute Assessment module is a significant component of the IRDMCM System.  The module contains a form that allows the tax examiner to view the computed assessment and make modifications to the taxpayer’s tax liability.  For instance, the tax examiner can change the transaction codes and reason codes.  These changes are validated by the system using a set of defined business rules that are available as part of the Compute Assessment Validation process. 

While this problem did not exist for the majority of the requirements for the IRDMCM System, the requirements for which the problem did exist are essential to the overall system solution.  Further, without descriptions that were sufficiently understood and agreed upon, the IRDMCM System was not properly designed, developed, coded, tested, or deployed for customer use. 

During our interviews with the system developers and SAT testers, they stated that:  a) the requirements should have been more detailed; b) the developers sometimes proceeded with coding based on assumptions whenever requirements were not adequate; and c) the SB/SE Division business processes continued to be established and requirements continued to change during the SAT.  Finally, IRS officials advised us that when the requirements were entered into the Requisite Pro automated tool, some of the descriptions were inadvertently lost.

All essential requirements were not included in the requirements baseline in July 2010

The requirements baseline established for the IRDMCM System in July 2010 did not include four essential IRDMCM System requirements concerning interest provisions, Power of Attorney, batch processing, and expanding the case history screen.  These requirements were added to the IRDMCM System using approved change requests.  The IRDMCM Team advised us that they became aware of the interest provision in August 2013 when they received an approved change request.  They stated that the other three changes were clarifications to earlier requirements.  The following describes two of these four essential requirements:   

·       Two percent interest penalty assessment – Internal Revenue Code Section 6621(c) imposes a 2 percent interest penalty assessment on large corporations if they underpay their taxes by more than $100,000.  Errors made in applying the 2 percent penalty assessment against large corporations could result in millions of dollars being wrongly assessed or abated by the IRS.  The IRS advised us that this requirement was to identify cases subject to the additional 2 percent penalty, and it was added to the IRDMCM System after the IRS made an internal decision that the Integrated Data Retrieval System would no longer perform this calculation and assessment. 

·       Priority Batches – This requirement was essential because the majority of IRS tax processing is performed using batch processing.  A batch is a collection of tax returns, correspondence, or cases that have been grouped together for processing.  IRS processes included a received date restriction that prevented IRS users from creating priority batches of cases.  This requirement removed that restriction and allowed IRS users to create priority batches of cases within the IRDMCM System.  The IRS advised that this requirement was a clarification of earlier requirements.

The IRDMCM System did not successfully pass the UAT

The UAT is conducted by IRS business owners to ensure that systems, as delivered, satisfy stated business requirements.  During the UAT, the SB/SE Division staff learned that the IRDMCM System could not process the business underreporter cases from beginning to end without generating problem tickets, including tickets involving numerous interface issues and clarifying system requirements.  For example, in November 2013, the IRDMCM Team advised the IRDM Executive Steering Committee that the majority of UAT-generated problem tickets, 95 of 191 (or 50 percent), were to clarify requirements and business rules for the IRDMCM System.  After a year of the UAT, IRS officials acknowledged that the IRDMCM System could not effectively process the business cases containing underreported income and could not be deployed into the IRS production environment.

The IRS has experienced adverse effects due to the unsuccessful deployment of the IRDMCM System

IRS officials advised us that due to budget constraints and the difficulties SB/SE Division users encountered during a year of UAT, the IRS decided to “strategically pause” development of the IRDMCM System effective at the end of January 2014.  IRS officials decided they would focus on building a case management capability using Entellitrak®software.  We identified the following three major consequences of insufficient requirements and failed UAT for the IRDMCM System.

The IRS spent millions of dollars on unsuccessful development for the IRDMCM System 

The IRS does not currently have a plan in place or an estimated time frame for restarting the IRDMCM System.  If the IRS does not complete development of the IRDMCM System or implement an alternative solution, it may not realize the full benefit from its IRDMCM System investment.  We obtained IRDMCM System costs from IRS management for the period of development from Fiscal Years 2009 to 2013.  During this time, the IRS spent $8,620,851 on the development of the IRDMCM System.  The $8.6 million does not include contractor costs that benefited the overall IRDM Program and were not captured separately for each IRDM project. 

Office of Audit Comment:  In their response to the report, IRS management did not agree that $8.6 million spent on this project constitutes an inefficient use of resources (as we note in Appendix IV).  Management stated that any future enterprise-wide case management solution implementation would benefit from the requirements that were identified during the IRDMCM Project, and they expect to reuse significant portions of the IRDMCM System programming code once the budget allows the IRS to address these needs.  Notwithstanding management’s assertion, they have not been able to demonstrate the likelihood or feasibility of this.  The $8.6 million was clearly intended for the development and deployment of the IRDMCM System, which has not been deployed as planned.  As a result, the IRS has not yet realized expected benefits of an operational, automated IRDMCM System.

There is no automated case management system to process and manage thousands of business taxpayer cases containing underreported income 

The IRS does not have an effective and efficient case management system capable of processing thousands of identified IRDM business taxpayer cases containing underreported income.  Tens of thousands of business cases with potentially underreported income were not processed when IRS officials decided to halt development of the IRDMCM System. 

The IRS identified an inventory of 97,406 business taxpayer cases for TY 2011 with potential underreported income.  IRS SB/SE Division staff advised that not all of these cases had to be processed.  Instead, they analyzed the cases and selected 37,965 of those cases with the highest potential to generate additional tax assessments.

Of the TY 2011 cases, the IRS staff processed 22,767 of the 37,965 cases and reported additional tax assessments of $83,696,052, or an average assessment of $3,676.  However, 14,945 of the high potential TY 2011 cases were not processed when IRS officials decided to halt IRDMCM System development.  IRS officials advised that the statute of limitations has passed on examining and assessing taxes on these TY 2011 cases.  Projecting the average over the 
14,945 TY 2011 cases that were not processed indicates that the IRS could have increased the revenue assessed by potentially $54.9 million if it had been able to implement the IRDMCM System as originally planned in November 2012.[6]

Figure 3 provides the status and results of IRS processing of selected IRDM TY 2011 cases. 

Figure 3:  IRS Processing of Identified IRDM 
Business Underreporter Cases as of August 8, 2014

Category

TY 2011 Cases

Total Business Taxpayer Cases Identified With Potentially Underreported Income

97,406

Total Cases Selected for Review

37,965

Total Cases Completely Processed

22,767

Total Cases Still in Process

     253

Additional Assessments From Completed Cases

$83,696,052

Cases That Were Not Processed Because the System Was Not Deployed

14,945

Source:  The IRS IRDMCM Team.[7]

Next steps for a case management solution to support the IRDM Program are being reconsidered 

IRDMCM System development has been shut down since March 2014.  The IRS informed us that the IRDM projects currently in production would be managed under Operations and Maintenance status.  IRS officials have advised us that Entellitrak has been selected as the commercial off-the-shelf solution for future case management capabilities that will support the IRDM Program. 

During our review of the IRDMCM System, we learned that there are more than 200 case management applications in operation across the IRS enterprise.  Twenty-three of these case management applications are based on nine installations of a single commercial off-the-shelf product called Entellitrak, owned by MicroPact.  Regarding the Entellitrak product, we recently issued a report on case management development for the Taxpayer Advocate Service.[8]  Our review of that development effort identified unresolved risks related to Entellitrak case management functionality for the Taxpayer Advocate Service Integrated System. 

During our discussion with IRS officials about the planning process for a new enterprise case management solution, we asked how system specific and business process requirements are being considered.  However, the IRS could not confirm that its selection of a commercial off‑the‑shelf solution for enterprise case management would verify that the product could meet essential business needs including SB/SE Division case management requirements for the IRDM Program.  Further, as of April 2014, IRS officials acknowledged three outstanding risks related to case management for the IRDM Program.  First, IRDMCM System requirements were not yet complete.  Second, the IRS has not fully evaluated Entellitrak as a possible case management solution for the IRDM Program.  Finally, the IRS did not have a viable plan for implementing Entellitrak as a replacement for the IRDMCM System. 

Several issues contributed to the IRS’s inability to deploy the IRDMCM System

Our review found several causes for the insufficient requirements and the unsuccessful UAT for the IRDMCM System.

An IT organization business analyst was not assigned to interpret and validate system requirements. 

The IRDMCM Team explained that there were no IT organization business analysts assigned to assist in identifying and interpreting IRDMCM System business requirements.  The IRDMCM Team advised that the need for business analysts was elevated to the Associate Chief Information Officer, Applications Development.  Unfortunately, the Applications Development organization was not given hiring authority for these positions. 

IRS IT organization policy did not stipulate the need for business process modeling techniques to specify well-defined requirements until February 2013. 

Business process modeling is a software development technique typically used to develop business and information requirements.  The development of requirements based on the contents of the business model (process, organization, location, and data models) allows for a comprehensive view of requirements as a whole to ensure that all requirements are interrelated without being contradictory or redundant.  The objective of business process modeling is to produce fully defined future state processes and associated requirements that will be key inputs to the business rules, organization, and location modeling activities.  The business process model, when complete, provides a holistic representation of the business requirements that will be used for information system design, build, and implementation. 

The IRDMCM Team explained that during Release 1, they did not develop formal business process models.  The IRDMCM Team did not use business process modeling techniques for specifying the initial requirements in July 2010 because modeling was not required at that time, although it was an industry best practice.  After the independent SAT was completed in January 2013, the IRS contracted with the MITRE Corporation to perform an independent review of the IRS IT organization development processes that had been followed for the IRDMCM System.  One of the action items from the review stated that the existing requirements process being followed could be improved by employing business process modeling.  The IRDMCM Team used business process modeling to develop requirements for IRDMCM Release 1.5.

The Requirements Handbook, Section 5.5.2.2, dated March 2007, states that the use of models to provide the detail needed to explicitly state the requirements are recommended, where appropriate. 

As a leader among its peers, the IRDMCM Team wrote their Requirements Management Plan, Section 4.1.2.2, dated July 2010, to state that business modeling techniques will be used to support requirements analysis and specification.  The section further states that business and technical models are required during the system development Domain Architecture (Milestone 2) and Preliminary Design (Milestone 3) phases and can be used to decompose requirements.

Finally, Internal Revenue Manual (IRM) 2.110.1.1.4,Requirements Engineering, Requirements Engineering Directive, dated February 2013, outlined IRS IT organizational directives and mandates to analyze requirements, develop models,e.g., business process, data, interface, system, and perform verification activities, e.g., peer reviews, for establishing well-defined requirements.  Prior to issuance of this mandate, IRS IT organization policies and procedures did not mandate that business process modeling be used when developing system requirements. 

Management Action:  In 2013, the IRDMCM Team began using business process models to specify the system requirements for Release 1.5.

Three key IRDMCM System interfaces were minimally tested during the SAT. 

The SAT is conducted by independent testers to verify that IRS systems, as delivered, satisfy defined business requirements.  From September 2, 2011, through January 10, 2013, the IRS IT organization Enterprise Systems Testing Office performed SAT testing for the IRDMCM System.  During the SAT, independent testers wrote problem tickets to document issues in testing IRDMCM System interfaces.  Similar concerns were identified with IRDMCM System interfaces during the UAT.  In November 2013, IRDM Executive Steering Committee executives were advised that there were repeated IRDMCM System interface testing concerns.  Incomplete SAT interface testing increases the likelihood that systemic errors will not be identified and that the system will not satisfy its intended business needs. 

The SAT Chief advised us that because the SAT test environment is not fully integrated, three IRDMCM System interfaces were not fully tested during the SAT and these interfaces continued to create problems during the UAT.  The interfaces that were not fully tested included the downloading and uploading of interest calculations, which are critical to the correct determination of tax liability.  In addition, during the UAT, the SB/SE Division staff used a tool to validate the interest calculations; however, this tool was not available to SAT testers.  The IRS stated that the tool has licensing requirements and typically involves a six‑month learning curve to master simple tax calculations.  The SAT Chief explained three constraints that existed during SAT testing for the IRDMCM System:

·       Enterprise System Testing Office’s priority during IRDMCM System testing was to test the system’s core functionality before testing its interfaces.

·       The IRS did not have a fully integrated test environment containing all the tax modules that are needed to properly test system interfaces.

·       Mid-way through Calendar Year 2012, the Enterprise System Testing Office moved the SAT environment forward to test data formats for the upcoming filing season; accordingly, the SAT environment was no longer available to test earlier data formats like those processed through a compliance system like the IRDMCM System.

Recommendations

The Chief Technology Officer should ensure that:

Recommendation 1:  The requirements management processes for future IRDMCM System development activityare performed in accordance with established guidelines, to include using business process modeling to specify well-defined requirements.

Management’s Response:  TheIRS agreed with thisrecommendation.  The various IT organizations leading andsupporting IRDM Programmanagement activities will continue to follow applicableEnterprise Life Cyclemethodology, milestones, and where appropriate, will use business process modeling tospecify requirements.  The IRS stated it is currently using the process.

Recommendation 2:  The IRDMCM System requirements are completely identified.

Management’s Response:  The IRS agreed with this recommendation, but added a qualification stating it would continue to follow established Enterprise Life Cycle paths for IRDMCM System and would identify requirements at the appropriate level for the various milestones of the Enterprise Life Cycle chosen for the IRDMCM System, as future budgets allow.

Office of Audit Comment:  The IRS agreed with this recommendation, but did not identify an implementation date for completely identifying IRDM case management requirements.  We remain concerned that the IRS has selected Entellitrak as its IRDMCM System solution before fully considering IRDM case management requirements.

Recommendation 3:  Case management capabilities of Entellitrak, or its replacement solution, are thoroughly assessed to ensure that it satisfies the IRDMCM System requirements and meets stated business needs.  IRS IT organization officials should also act promptly to implement an IRDM case management application to avoid losing significant tax assessment revenue in the future.

Management’s Response:  The IRS partially agreed with this recommendation.  The IRS stated that it is currently engaging the commercial off-the-shelf solution vendor to conduct product technical demonstrations to determine how various project/program business needs and requirements can best be met.  The IRS is currently under significant budget constraints and is expecting additional budget cuts in Fiscal Year 2015.  Therefore, the funding of the IRDMCM System is subject to overall budgets and prioritization of essential taxpayer operations.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall audit objective was to determine how system development risks for the IRDMCM Project are being mitigated and whether established business and information technology requirements to improve compliance and reduce the Tax Gap[9] are adequately addressed.  To accomplish this objective, we:

I.                 Determined whether requirements management and change management guidelines were followed in developing and managing changes to the IRDMCM System requirements.

A.    Reviewed the requirements and configuration management plans.

B.    Reviewed the IRM guidelines for requirements and configuration management.

C.    Interviewed the IRDMCM Team to determine whether the guidelines were followed in developing the requirements.

D.    Determined whether the Requirement Traceability Verification Matrix was developed and used to trace requirements to test cases and the test results were recorded as required by the IRM guidelines.

E.     Reviewed the approved change requests associated with the new requirements developed and added via the IRDMCM System Release 1.5.

F.     Reviewed the IRDMCM System requirements to determine whether they were prepared in accordance with the guidelines.

G.    Determined the number of TY 2011 underreporter cases identified and their processing status, including the number of cases that were not processed, and those that resulted in additional tax assessments.

1.     Determined that the IRS identified an inventory of 97,406 TY 2011 business taxpayer cases with potential underreported income. 

2.     Determined that the IRS selected for processing 37,965 of the 97,406 TY 2011 cases identified.  The IRS selected those cases containing the highest potential to generate additional tax assessments.[10]

3.     Determined that the IRS staff completely processed 22,767 of the 37,965 selected cases.[11]

4.     Determined that the IRS did not process 14,945 of the 37,965 cases when IRS officials decided to halt development of the IRDMCM System.

II.               Determined whether the SAT of the IRDMCM System was performed in accordance with established IRS testing guidelines.

A.    Reviewed the SAT test guidance in the IRM.

B.    Reviewed the IRDMCM System SAT Test Plan to ensure that the plan was developed in accordance with testing guidelines.

C.    Reviewed the Requirement Traceability Verification Matrix to ensure that test cases were completed for approved requirements, test cases were executed, and test results were recorded.

D.    Interviewed the SAT Chief to determine whether the guidelines were followed in testing the IRDMCM System.

E.     Reviewed the IRDMCM System Release 1 End of Test Status Report and the End of Test Completion Report to ensure that key controls such as audit trails were not failed, waived, or deferred to future releases.

Internal controls methodology

Internal controls relate to management’s plans, methods, and procedures used to meet their mission, goals, and objectives.  Internal controls include the processes and procedures for planning, organizing, directing, and controlling program operations.  They include the systems for measuring, reporting, and monitoring program performance.  We determined that the following internal controls were relevant to our audit objective:  the IRM and related IRS guidelines and the processes followed in the development of the information technology project.  We evaluated these controls by conducting interviews with management and staff and reviewing and analyzing IRDM Program documentation such as the Requirements Management Plan, the SAT Test Plan, and other documents that provided evidence of whether IRS system development processes were adequately followed.

 

Appendix II

 

Major Contributors to This Report

 

Alan R. Duncan, Assistant Inspector General for Audit (Security and Information Technology Services)

Danny R. Verneuille, Acting Assistant Inspector General for Audit (Security and Information Technology Services)

Gwendolyn A. McGowan, Director

Carol L. Taylor, Audit Manager

Wallace C. Sims, Lead Auditor

Andrea R. Barnes, Senior Auditor

Charlene L. Elliston, Senior Auditor

Hung Q. Dam, Information Technology Specialist

 

Appendix III

 

Report Distribution List

 

Commissioner  C

Office of the Commissioner – Attn:  Chief of Staff  C

Deputy Commissioner for Operations Support  OS

Deputy Commissioner for Services and Enforcement  SE

Commissioner, Small Business/Self-Employed Division  SE:S

Deputy Chief Information Officer for Operations  OS:CTO

Deputy Chief Information Officer for Strategy and Modernization  OS:CTO

Associate Chief Information Officer, Applications Development  OS:CTO:AD

Associate Chief Information Officer, Enterprise Services  OS:CTO:ES

Director, Campus Compliance Services  SE:S:CCS

Director, Communications, Outreach, Systems, and Solutions  SE:S:COSS

Director, Compliance  OS:CTO:C

Director, Enterprise Systems Testing  OS:CTO:ES:EST

Chief Counsel  CC

National Taxpayer Advocate  TA

Director, Office of Legislative Affairs  CL:LA

Director, Office of Program Evaluation and Risk Analysis  RAS:O

Office of Internal Control  OS:CFO:CPIC:IC

Audit Liaisons:

Director, Business Planning and Risk Management  OS:CTO:SP:RM

Director, Program Management  OS:CTO:AD:PM

 

Appendix IV

 

Outcome Measures

 

This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration.  These benefits will be incorporated into our Semiannual Report to Congress.

Type and Value of Outcome Measure:

·       Inefficient Use of Resources – Potential; $8.6 million (see page 8).

Methodology Used to Measure the Reported Benefit:

The IRDMCM System is an application designed to allow IRS SB/SE Division[12] users to manage and work identified business taxpayer cases that have discrepancies in the income reported which could potentially affect taxpayers’ tax liabilities.  The IRDMCM System Release 1 was designed to manage the cases selected while they are being worked by IRS tax examiners.  However, in January 2014, IRS officials decided to halt development of the IRDMCM System due to Fiscal Year 2014 budget constraints and the problems experienced in more than a year of the UAT.  IRS officials decided they would focus on building a case management capability using Entellitrak®.   

Currently, there is neither a plan in place nor a time period for restarting the IRDMCM System.  Moreover, the IRS does not have a viable plan for implementing an alternative commercial off-the-shelf solution for the IRDMCM System.  If the IRS does not complete the development of the IRDMCM System or implement an alternative solution, it may not realize the full benefit from its investment.  During Fiscal Years 2009 to 2013, the IRS spent $8,620,851 on the development of the IRDMCM System.  We obtained the IRDMCM System costs from IRS management for this period.  The $8.6 million does not include contractor costs that benefited the overall IRDM Program.

Type and Value of Outcome Measure:

·       Increased Revenue – Potential; $54.9 million[13] (see page 8).

Methodology Used to Measure the Reported Benefit:

The IRS does not have an effective and efficient case management system capable of processing thousands of identified IRDM business taxpayer cases containing underreported income.  Tens of thousands of business cases with potentially underreported income were not processed when IRS officials decided to halt development of the IRDMCM System. 

The IRS identified an inventory of 97,406 business taxpayer cases for TY 2011 with potential underreported income.  The IRS SB/SE Division staff advised that not all of these cases had to be processed.  Instead, they analyzed the 97,406 cases and selected 37,965 of those cases with the highest potential to generate additional tax assessments.[14]  Of the selected TY 2011 cases, the IRS staff completely processed 22,767 cases and reported additional tax assessments of $83,696,052.  However, 14,945 of the high potential TY 2011 cases were not processed when IRS officials decided to halt IRDMCM System development.  IRS officials advised that the statute of limitations has passed on examining and assessing taxes on these cases.

The average assessment of additional taxes for the TY 2011 cases that were completely processed is $3,676 ($83,696,052/22,767).  Projecting that average over the 14,945 TY 2011 cases that were not processed suggests the IRS could have increased the revenue assessed by potentially $54,937,820 ($3,676 x 14,945) if it had been able to implement the IRDMCM System as originally planned in November 2012. 

Figure 1 provides details of our estimate of the lost tax assessments associated with the unprocessed TY 2011 business cases containing potential underreported income.

Figure 1:  Estimate of Tax Assessments Lost 
From Unprocessed TY 2011 Business Underreporter Cases

 

Estimated Potential Lost Tax Assessments

Tax Return Category

Lower Limit

Point Estimate

Upper Limit

Unprocessed TY 2011 Business Underreporter Cases

$50,405,655

 

$54,940,809

 

$59,475,963

 

Source:  Treasury Inspector General for Tax Administration contract statistician.

 

Appendix V

 

Glossary of Terms

 

Term

Definition

Applications Development

The IRS organization responsible for building, testing, delivering, and maintaining integrated information applications systems, i.e., software solutions to support IRS modernized systems and the production environment.

Assessment

Assessment is a change to the amount of tax on the taxpayer’s account.

Automated Underreporter System

An inventory control system used in the Individual Master File Underreporter Program. 

Business Analyst

The analyst who leads and coordinates the development of business architecture and design models (process, organization, location, and business rules) from which some requirements can be deduced. 

Business Master File

The IRS database that consists of Federal tax-related transactions and accounts for businesses.  These include employment taxes, income taxes on businesses, and excise taxes.

Business System Requirements Report

Within the Enterprise Life Cycle, the Business System Requirements Report documents a feasible, quantified, verifiable set of requirements that define and bind the business system or subsystem(s) being developed or enhanced by the project.  These requirements form the basis for business system design, development, integration, and deployment.

Commercial Off‑the‑Shelf

Pre-packaged, vendor-supplied software that will be used with little or no modification to provide all or part of the solution. 

Configuration Control Board

A group of technical experts and managers with the assigned authority and responsibility to make decisions on the configuration of a baselined product.

Default

If the response from the taxpayer does not resolve the issue, there is no response, or if the Post Office returns the notice to the taxpayer as undeliverable, the Statutory Notice of Deficiency defaults.  The IRS completes the assessment and closes the case.

Domain Architecture Phase (Milestone 2)

The Domain Architecture Phase includes the portion of the life cycle between Milestones 1 and 2, and includes development of a business system concept, business system requirements, and business system architecture.

Encryption

The process of making data unreadable by other humans or computers for the purpose of preventing others from gaining access to its contents. 

Entellitrak®

A commercial off-the-shelf software created by MicroPact consisting of pre-configured applications that reflect best practices, business rules, and terminology for case management solutions.

Enterprise Life Cycle

The approach used by the IRS to manage and effect business change.  The Enterprise Life Cycle provides the direction, processes, tools, and assets for accomplishing business change in a repeatable and reliable manner. 

Executive Steering Committee

A committee that oversees investments, including validating major investment business requirements and ensuring that enabling technologies are defined, developed, and implemented. 

Filing Season

The period from January 1 through April 15 when most individual income tax returns are filed.

Functional Requirements

Requirements that involve the users’ interaction with the system.  Functional requirements specify what the information system is expected to do – its functionality – which may include existing system functionality that the new or enhanced system will retain.

Infrastructure

The fundamental structure of a system or organization.  The basic, fundamental architecture of any system (electronic, mechanical, social, political, etc.) determines how it functions and how flexible it is to meet future requirements. 

Integrated Data Retrieval System

IRS computer system capable of retrieving or updating stored information.  It works in conjunction with a taxpayer’s account records.

Interface

Data exchange between one or more systems.

Internal Revenue Code

Federal statutes pertaining totaxes that are imposed by theFederal Government are compiled into Title 26 of theUnited States Code.  This title is commonly referred to as the “Internal Revenue Code” or, often by tax practitioners, as the “Code.”

MITRE Corporation

The MITRE Corporation was hired by the IRS as a Federally Funded Research and Development Center to assist with the IRS’s systems modernization effort. 

Power of Attorney

A form authorizing a representative to perform certain acts on the taxpayer’s behalf.

Preliminary Design Phase (Milestone 3)

One of the eight phases in the System Life Cycle Layer of the Enterprise Life Cycle Framework.  The Preliminary Design Phase includes the portion of the life cycle between Milestones 2 and 3, and includes development of application requirements and logical design of the system.

Rational Requisite Pro (ReqPro)

A software tool used to track system requirements.

Reason Code

A taxpayer is issued a notice of adjustment when the IRS takes an action on the taxpayer’s tax account.  The notice includes an explanation of the action.  The reason code determines the type of notice generated to the taxpayer and the statement that will be printed to explain the tax adjustment. 

Requirements Baseline

A requirements baseline is a specification or product that has been formally reviewed and approved and serves as a basis for further development.  It is changed only through formal change procedures.

Small Business/
Self-Employed Division

The SB/SE Division has approximately 22,000 employees who serve 
54 million taxpayers.  The SB/SE Division serves roughly one-third of the overall taxpayer base.  Its mission is to help small business and 
self-employed taxpayers understand and meet their tax obligations, while applying the tax law with integrity and fairness to all.

Statutory Notice of Deficiency

Legal notification sent to taxpayers by certified mail, which explains the taxpayer’s right to file a petition with the Tax Court and the IRS’s right to change tax without taxpayer consent if no timely petition is filed.

Statutory Suspense Period

The time period, either 90 days or 150 days, that a taxpayer has to file a petition with the Tax Court after receiving a Statutory Notice of Deficiency. 

System Acceptability Testing

A system test conducted to verify that the system satisfies application requirements.

Tax Examiner

Employees in field offices who conduct examinations through correspondence.  Among other duties, a tax examiner processes tax returns, establishes and edits tax account records, and determines proper tax liabilities.

Tax Gap

The Tax Gap is the estimated difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time.

Tax Module

Part of a taxpayer’s account which reflects tax data for one tax class (Master File Tax) and one tax period.

Taxpayer Information File

A file containing entity and tax data processed at a given campus for all Taxpayer Identification Numbers.

Transaction Code

A three-digit code used to identify actions being taken to a taxpayer’s account.

User Acceptance Testing

Testing conducted to validate that the system works as designed and implemented and satisfies the business requirements of the system.

Waterfall

Distinguished by development of a solution with frequent reviews and formal approvals required at multiple points in the life cycle prior to additional work being performed. 

 

Appendix VI

 

Management’s Response to the Draft Report

 

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

 

CHIEF TECHNOLOGY OFFICER

 

 

September 19, 2014

 

MEMORANDUM FOR DEPUTY INSPECTOR GENERAL FOR.AUDIT

 

FROM:                             Terence V. Milholland /s/ Terence V. Milholland

                                          Chief Technology Officer

 

SUBJECT:                       Draft Audit Report – Information Reporting and Document Matching Case Management System Could Not be Deployed (Audit #201420012) (e-trak # 2014-58587)

 

Thank you for the opportunity to review and respond to the audit report.

 

Since 2009, Congress has enacted a number of provisions in the Internal Revenue Code (IRC) to enhance business tax filing accuracy and compliance by automating the matching of data reported on information returns to the data submitted on filed business tax returns.  The Information Reporting and Document Matching (IRDM) Program was established to ensure IRS (1) provided information return filers with the proper support to file their returns and (2) effectively utilized the new information returns in taxpayer assistance and compliance programs.  To this end, IRS completed four significant systems implementation’s; Data Assimilation, Data Correlation, Business Master File Analytics, and Case Inventory Selection and Analytics projects.  These deployed projects are currently in production and providing valuable capability to the agency, identifying potential under-reporting by businesses.

 

Another piece of the IRDM development was the case management system (IRDMCM).  IRDMCM was designed to provide the IRS with an automated system to manage the significant number of cases being identified.  In January 2014, IRS, through our established governance process, decided to strategically pause development of the IRDMCM system due to budget constraints and the inability to certify that the ongoing case management functionality deployment would not have an adverse impact on taxpayers.

 

Since then, IRS has determined that future case management systems will be developed utilizing software called entellitrak©.  We have identified entellitrak© as our enterprise standard to allow us to more efficiently and effectively provide IT systems across the organization.  As part of our re-planning of IRDMCM we intend to use entellitrak©.  Once our budget allocations improve, we will continue the re-planning effort.  Meanwhile, we will continue to process cases manually and will integrate IADM data into existing compliance workstreams.

 

The IRS disagrees with the Outcome Measure of inefficient use of Resources of $8.6 million.  Any future enterprise-wide case management COTS solution implementation will benefit from the requirements that were identified & refined by the IRDMCM project.  Most of the IRDMCM system programming code was written in JAVA programming language, we expect to leverage and re-use significant portions of that code base as part of any IRDMCM COTS based solution, once the budget allows IRS to address these needs.

 

The IRS agrees with the Outcome Measure of potential increased revenue of $55.1 million, however due to budgetary constraints and the lack of an automated case management system, we can only process cases with the highest potential to generate additional tax assessments.  Until a systemic case management system is available, we will continue to process cases manually at maximum levels and will integrate IRDM data into existing compliance workstreams.   Once our budget allows and a certified system to automate case management can be deployed, we will be able to systemically process larger volumes of cases.

 

We value your continued support and the assistance your organization provides.  If you have any questions, please contact me at (240) 613-9373, or a member of your staff may contact Lisa Starr, Senior Manager of Program Oversight, at (240) 613-4219.

 

Attachment

 

RECOMMENDATION #1:  The CTO should ensure that the requirements management processes for future IRDMCM activity are performed in accordance with established guidelines, to include using Business Process Modeling to specify well-defined requirements.

 

CORRECTIVE ACTION #1:  The IRS agrees with this recommendation.  The various IT organizations leading& supporting IRDM Program Management activities will continue to follow applicable Enterprise Lifecycle (ELC) methodology, milestones and, where appropriate, will use Business Process Modeling to specify requirements.

 

IMPLEMENTATION DATE:  N/A- currently using process

 

RESPONSIBLE OFFICIAL:  Associate Chief Information Officer, Enterprise Services & Associate Chief Information Officer, Applications Development

 

CORRECTIVE ACTION MONITORING PLAN:  We enter accepted Corrective Actions into the Joint Audit Management Enterprise System (JAMES) and monitor them on a monthly basis until completion.

 

RECOMMENDATION #2:  The CTO should ensure that IRDMCM requirements are completely identified.

 

CORRECTIVE ACTION #2:  The IRS agrees with this recommendation with the following clarification:  we will continue to follow established Enterprise Life Cycle path(s) for IRDMCM and will identify requirements at the appropriate level for the various milestones of the ELC chosen for IRDMCM, as future budgets allow.

 

IMPLEMENTATION DATE:  NA- When IRS budget allows IRDMCM to be restarted, the proper requirements methods will be applied.

 

RESPONSIBLE OFFICIAL:  Associate Chief Information Officer, Applications Development &Associate Chief Information Officer, Enterprise Services

 

CORRECTIVE ACTION MONITORING PLAN:  We enter accepted Corrective Actions into the Joint Audit Management Enterprise System (JAMES) and monitor them on a monthly basis until completion.

 

RECOMMENDATION #3:  Case management capabilities of Entellitrak, or its replacement solution, are thoroughly assessed to ensure that it satisfies the IRDMCM System requirements and meets stated business needs.  IRS IT officials should also act promptly to implement an IRDM case management application to avoid losing significant tax assessment revenue in the future.

 

CORRECTIVE ACTION #3:  The IRS partially agrees with this recommendation.  We are currently engaging the COTS solution vendor to conduct product technical demonstrations to determine how various project/program business needs and requirements can best be met.  The IRS is currently under significant budget constraints and the Service is expecting additional budget cuts in FY15.  Therefore; the funding of the IRDMCM is subject to overall budgets and prioritization of essential taxpaying operations.

 

IMPLEMENTATION DATE:  October 25; 2015

 

RESPONSIBLE OFFICIAL:  Associate Chief Information Officer; Enterprise Services

 

CORRECTIVE ACTION MONITORING PLAN:  We enter accepted Corrective Actions into the Joint Audit Management Enterprise System (JAMES) and monitor them on a monthly basis until completion.

[1] See Appendix V for a glossary of terms.

[2] Third-party payors include merchant banks that make payments on credit cards, brokerage firms that sell securities, and Government entities that withhold 3 percent of the payments made to businesses for providing property or services.

[3] Public Law 112-56 125 Stat. 711.

[4] Public Law No. 109-222 120 Stat. 345.

[5] IRS IT organization’s Requirements Handbook, Section 5.1 (Mar. 2007).

[6] Our contract statistician assumed that the 22,767 cases worked were a representative sample of the population of 37,965 cases; therefore, we are 95 percent confident that the true total assessment amount not obtained is between $50,405,655 and $59,475,963.

[7] The number of cases and related assessment dollars were provided by the SB/SE Division and were not independently verified by the auditors.  

[8] Treasury Inspector General for Tax Administration, Ref. No. 2014-20-071, Information Technology:  Improvements Are Needed to Successfully Plan and Deliver the New Taxpayer Advocate Service Integrated System (Sept. 2014).

[9] See Appendix V for a glossary of terms.

[10] We discussed the IRS case selection methodology with a contract statistician.  The IRS attempted to prioritize the review of cases so that those cases with the greatest likelihood of yielding additional assessments were worked first.  However, this was the first year that this prioritization methodology was used for this application, and the IRS was unable to provide any historical data from prior years as evidence to validate that this methodology actually worked. 

[11] The contract statistician assumed that the 22,767 cases worked were a representative sample of the population of 37,965 cases.

[12] See Appendix V for a glossary of terms.

[13] The contract statistician assumed that the 22,767 worked cases are a representative sample of the population of 37,965 cases; therefore, we are 95 percent confident that the true total assessment amount not obtained is between $50,405,655 and $59,475,963.

[14] The IRS attempted to prioritize the review of cases so that those cases with the greatest likelihood of yielding additional assessments were worked first.  However, this was the first year that this prioritization methodology was used for this application, and the IRS was unable to provide any historical data from prior years as evidence to validate that this methodology in fact worked.

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Watch: Tax Problems for President J. C. Junker (E.U. Commission) One Week After Taking Office. He Ran Tax Haven Luxembourg For Years and is Now Supposed To Combat Tax Havens for Europe from Tax News Online Report on RexTube.

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Tax haven Luxembourg: Juncker in a bind – http://dw.de/p/1DiYV

INTERNATIONAL TAXATION EU

Luxembourg tax deals with global firms under fire after news leaks.

Luxembourg is under fire after leaked documents revealed its huge tax avoidance deals with hundreds of top global firms, putting its former premier Jean-Claude Juncker under the spotlight in his first week as EU commission chief.

Household names such as Pepsi, IKEA and Deutsche Bank were among companies named by the US-based International Consortium of Investigative Journalists (ICIJ) following a six-month investigation of 28,000 leaked documents.

Billions of dollars were funnelled through the tiny European duchy of Luxembourg thanks to complex financial structures that allowed companies to slash their tax liabilities, depriving hard-up governments around the world of vital revenue.
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The revelation comes at a particularly awkward moment for Juncker, who took office Saturday as head of the EU’s executive arm after 19 years as Luxembourg prime minister, during which many of the deals were made.

Luxembourg’s current prime minister, Xavier Bettel, insisted Thursday that the sweetheart tax deals were legal. “I want to underline that these (tax) rulings conform to international laws,” Bettel said.

Juncker presided over the tax affairs of Luxembourg for over two decades, guiding the country from being a sleepy European backwater to a prized destination where hundreds of the world’s biggest companies now base their affairs.
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Watch: Why Luxembourg is the best place to invest offshore on RexTube…: http://youtu.be/Zu2TEuCWGh0

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Juncker won’t influence probe

Juncker’s spokesman said the European Commission was already investigating whether Luxembourg’s tax deals with US Internet shopping giant Amazon and the financial arm of Italian carmaker Fiat amounted to illegal state aid.
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“If the decision is negative, Luxembourg will have to take corrective actions,” spokesman Margaritis Schinas explained.

On Wednesday, asked about the tax policies he once led, Juncker told journalists that he “had his ideas” about the matter but would do nothing to affect the EU’s investigation “as this would be indecent”.

In its investigation, the ICIJ found that global accounting giant PricewaterhouseCoopers had helped multinationals in question secure at least 548 tax rulings in Luxembourg between 2002 and 2010.

The documents uncovered details of so-called Advance Tax Agreements — pre-negotiated deals which set out how companies will be taxed.

“It’s like taking your tax plan to the government and getting it blessed ahead of time,” the ICIJ  quoted Connecticut School of Law tax expert Richard Pomp as saying.

The controversial practice, also called “tax rulings”, is the subject of the EU’s probes into Luxembourg’s deals with Amazon and Fiat.

The EU has power over member states tax affairs as such, but it can probe whether they amount to illegal state aid, which breaches the 28-nation bloc’s rules on free trade and competition.
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Similar cases have been opened against Ireland for tax deals with tech giant Apple and the Netherlands with coffee chain Starbucks.

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Watch: European Parliament Calls for a Europe-Wide Tax Haven Crack Down on Tax News Online Report…http://youtu.be/-yyrnYfLvb8
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There are two problems with that objective.

1. The EU Parliament can not introduce bills to be voted on to become law. Only the EU Commission can introduce bills so that the EU Parliament can vote them into law.
2. The new EU Commission President is Jean-Claude Junker who has left being President of tax haven Luxembourg for many years. Good luck with that objective parliamentarians.

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[Editor Observation] It was noted that Martin Schulz was re-elected President of the European Parliament. MEPs re-elected Martin Schulz as President of the European Parliament on Tuesday morning for another two and a half year term.
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But… Martin Schulz is a German member of the communist party, and he had tried to become the president of the E.U. Commission and Junker won the election. It appears that Junker may be pro-business and economic growth. Communist platforms in the past have been anti-business and in favor of the government owning the means of production. Now when the parliamentarians call for and end to the law abiding countries and business owners that are following the law, are they really saying the independent countries should not have any rights against an overbearing EU communust leaning government. And are they really trying to drive businesses out of the EU because it cost too much to pay for wealth distributing and less than productive socialists who are always trying to take and spend someone elses money for what think are better than allowing private property rights. It is possible that Martin Scholz was behind the Luxemburg press leaks as part of a sour grapes smear campaign because Mr. Scholz was not picked for the EU Commision presidency. Of course this hypothsis is speculative, but very plausable indeed.
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Now on with the news.

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EU TAX HAVENS MEET WITH PUBLIC OBJECTION, EVEN IF NOT BREAKING THE LAW on Tax News Online Report_Tube.
Hash Tag=
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: http://youtu.be/xi-UM3qgBJc
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Warch: Observers call EU for fiscal war against tax havens on Tax News Online Report. : http://youtu.be/BXxJiN8bNQA
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USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

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FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
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San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
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E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
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All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
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IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

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Rex Crandell, CPA says: Watch “S-Corp, C-Corp, or LLC – Which is better for you? on RexTube.
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S-Corp or LLC – Which is Better? Of course, it depends what you want that little ‘corporate puppy’ to do for you.
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As a California resident, never form an out of state corporation or LLC then bring it back to California without properly registering to do business in California. You will ‘pay the piper’ dearly for that nieve action.
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After you get done digesting the differences between a C type corporation and an S type corporation, I suggest that you next evaluate how a California Limited Liability Company (LLC) would benefit you business.plan.
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And never call a LLC, Limited Liability ‘Company’ by the name Limited Liability ‘Corporation’ by mistake or everyone will immediately that you are a ‘dufus’ and you know how embarrasing that would be.
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Make sure your business entity plan is water proof. You never know what might happen next. You might become filthy rich and be the next Bill Gates or Sir Richard Branson or Mark Suckerberg.

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LLC, S Corp and C Corporation: Differences Between the Three on RexTube. : http://youtu.be/NWCby9obirA
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Stay focused on your business plan, not vearing to the left or right of course or you might experience some unintended consequences.
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You can kick up your heals and have a goofy swell time with your buddies after you make your first billion dollars or two. But do not let it go to your head. Always keep honest and accurate business records. It is also a mandatory good idea to accurately report every dime of income you receive and only claim legitimate business expenses that will hold up in court if contested.
Do not play games with you tax reporting. Just do it right and save your creativity for your products or services that will generate long term satisfied costomers who insist on doing business with you because they can always rely on you and can always trust in you. It is better to sleep well at night so you can focus your energies on you business plans and opportunities.
Honest, hardworking business people do much better in the long run compared to people that do not place a high value on honesty and ethical conduct. “Cheaters never prosper in the long run”. If it sounds too good to be true, guess what? It’s likely a scam that you should stay away from.
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USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

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FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
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E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
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IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

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This is the new mossy green health insurance. It’s rock solid coverage with built in tooth sharpening stones.
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Time Running Out to Sign Up for Obamacare This Year

HealthDay /Comment /SHARE

THURSDAY, March 13, 2014 (HealthDay News) — Still thinking about signing up for insurance under the new U.S. health care law? You’d better act quickly because the enrollment deadline to obtain coverage this year is March 31.

Not only will you obtain health insurance, but if you are currently uninsured and select a marketplace health plan before the end of the month, you’ll avoid new federal tax penalties for not having coverage. This so-called individual mandate is a key feature of the Affordable Care Act, often called Obamacare.

“I think a lot of people are either hoping that the individual mandate goes away or . . . they’re just ignoring it,” said Jim Carleton, an enrollment specialist with Tri-Town Community Action Agency in Johnston, R.I., one of the state’s health insurance navigators.

With little more than two weeks left in this year’s open-enrollment period, now’s the time to get serious. Here’s what you need to know to get signed up.

The Affordable Care Act created federal and state marketplaces where consumers can shop for a health plan. These marketplaces for health plans are only available for a limited time each year.
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If you select a plan by March 15, your coverage will begin on April 1. But if you sign up between March 16 and the end of the month, your coverage won’t kick in until May 1.

“We’re going to try to get people to enroll by the 15th at all costs because one month without coverage could be devastating to people,” said Mark Colwell, director of consumer marketing at GoHealth in Chicago, a web-based health insurance broker whose licensed advisers help consumers enroll in marketplace plans.
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If you miss the March 31 enrollment deadline, you’ll have to wait until the next open enrollment period, beginning Nov. 15, to obtain coverage starting in 2015.

 You can sign up after March 31 if you have some special circumstance, such as a marriage, divorce or birth of a child.
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There’s no deadline for enrolling in Medicaid or the Children’s Health Insurance Program, which are publicly funded programs for the poor.

If your income falls within a certain range, you can use federal tax credits to lower your monthly health-plan premium, but only if you buy a plan through the Affordable Care Act’s federal and state marketplaces.
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People who earned less than 400 percent of the federal poverty level last year — $45,960 for an individual or $94,200 for a family of four — can qualify for the tax credit. The amount of assistance depends on your household income and family size.

“I actually have families that qualify for as much as a $1,200-a-month subsidy. You can’t walk away from that kind of money,” said Joe Partise, of Joe Partise CLU & Associates, a Garden Grove, Calif.-based certified insurance agent for the state health marketplace, Covered California.

What if you don’t qualify for a tax credit or it’s too small to make much difference? You may want to shop for a health plan outside of the marketplaces, Partise suggested. “There’s less steps and there’s less opportunity for things to go wrong and fall through the cracks,” he said.
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All marketplace plans offer essentially the same core benefits. The key difference is what you’ll pay for coverage, advisers say. In addition to the monthly premium, people need to consider the annual deductible and any copayment or coinsurance amounts they’re likely to shell out.

If you choose a so-called “bronze” plan, you’ll probably have a lower premium, but you’ll pay more out of pocket for medical services. With a “gold” plan, your premium may be higher, but it will cover a greater share of the expenses when you receive services
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Penalties and kick-backs for every budget. You only need be over age 18 and a USA citizen or hold a USA resident VISA. Sorry, non-resident alien persons working and living permanently in the USA can not qualify for the most extensive tax penalties available for citizens and Green Card residents. This is universal-socialism-coverage-for-all-comrads.
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YOU CAN STILL QUALIFY FOR SOME GREAT NEW TAX PENALITES.
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Time Running Out to Sign Up for Obamacare This Year

HealthDay. March 13, 2014
Comment /SHARE

Curt Fackler, a manager at Better Health Together, a community-based health-care collaborative in Spokane, Wash., likes to help people select a plan by comparing three options. “When you put them side by side, it sure makes it a lot easier,” he said.

 Some lower-income individuals and families can qualify for reduced cost-sharing amounts, but only if they choose a “silver” plan.

If seeing certain doctors or using a particular hospital is important to you, make sure your providers are in the health-plan network.

Provider networks in marketplace plans are often skimpier than those available outside of the marketplace, advisers said. The decision then becomes a trade-off.
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Some people want a certain doctor “no matter what,” said Partise. Others say, “if it comes down to dollars and cents, I’ll find somebody new,” he explained.

 If your health-care provider is not in the plan you choose, you can go out of network for care. But depending on the plan, you’ll pay a lot more, or maybe all, of the cost.

Every state has people to assist consumers completing an application for coverage and enrolling in a health plan through the federal HealthCare.gov website or through their state health marketplace.

“We want to get people in the plan that best suits them and their budget,” said Tri-Town’s Carleton.
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Licensed insurance agents and brokers can also help with selecting and enrolling in a plan.

 Go to localhelp.healthcare.gov and enter your city or ZIP code to find help near you. They will be happy to take your money.

Go to HealthCare.gov for more tips onchoosing a health plan.

Copyright © 2014 HealthDay. All rights reserved
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YOU CAN STILL QUALIFY FOR SOME GREAT NEW TAX PENALITES.

In other news shared today:
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NPR REPORTS:
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Health Care Enrollments Up, But Still Well Short Of Goal
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Another 940,000 people signed up for health insurance in February under the Affordable Care Act, bringing the total to 4.2 million since the troubledHealthCare.gov website was launched, the Department of Health and Human Services reports. The number is still well short of the administration’s goal for March 31, when open enrollment ends.

To reach 6 million sign ups under the ACA, as the White House had hoped for, another 1.8 million people would need to enroll by the end of the month.
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Hay. Pull my finger. €:=)

As The Associated Press reports:

“That’s way above the daily averages for January and February, which have ranged between 33,000 and 34,000. The math seems to be going against the administration.

“Officials expect the pace to pick up. The big question is whether it will be enough to make up for the technical troubles that paralyzed HealthCare.gov much of last fall and the continuing challenges for several state-sponsored websites.”

CNBC says:
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“The new data reveals a significant fall-off from January, when about 1.1 million people enrolled during the month.
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“Another highlight—or lowlight—of Tuesday’s enrollment report was the disclosure that the percentage of young adults signing up for Obamacare had remained at 27 percent of total sign-ups in the past two months. That’s well below the 40 percent level some health-care experts have said would ensure that premiums paid to insurance companies would more than offset benefits paid out to older, sicker enrollees.”

But CNBC quotes Timothy Jost, a law professor and health-care reform expert at Washington and Lee University, as saying that the 6 million goal is still possible.

“There’s every reason to believe that they’re right, that sign-ups are going to shoot up in March, and that they’ll get to 6 million,” Jost said.

However, 6 million is less than the original target of 7 million enrollments by the end of March.
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The number of enrollees is just part of the overall equation – the mix is just as important. The administration wants to get enough young, relatively healthy people to enroll to offset the costs of the older, less healthy ones.

According to the report on Tuesday, cumulatively 30 percent of those who have signed up are between 55-64 years of age — the single largest group.
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healthcare law
NPR News

©2014 NPR Public Funded.
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Else ware in unrelated levity:

The new government health insurance Web site is easy to use and the administration sources say everyone is having a good experience buying government mandated health insurance. The hell-th_insurance-tax has catchy little names and phrases that lulls most people into a happy alpha state in a matter of moments. That is, after the government tracking and monitoring computer data chip is permanently placed under their skin where they tell us it is out of harms way and may contain only small doses of mind control and happy Comunalism background musik to help with those darn natural emotions.
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YOU CAN STILL QUALIFY FOR SOME GREAT NEW TAX PENALITES.
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YOU CAN STILL QUALIFY FOR SOME GREAT NEW TAX PENALITES.

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Fantasy Land:
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(Parody, not to be taken seriously) unless you want to.

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Food for thought.
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Have you thunk about it yet?
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Don’t try this at home boys and girls.  This video depicts some dramatic conduct that is clearly not appropriate.   But it’s kind of funny.  File this conent under “Income Tax Dreams & Schemes”. 

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Oh, yeah.
The video does not express the opinions, values, ideas, or recomendations of this channel, its authors, sponsors,  advertisers, nor its contributors nor its employees opinions.   Like the famous three little monkeys saying, ‘hear no evil,  see no evil,  speak no evil,  and do no evil’.

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See above disclaimer.  Parody commentary and video.  Not to be taken seriously.
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USA ~ EAGLE & FLAG Mov Gif 04FEB14

A MESSAGE FROM REX CRANDELL’S TAX OFFICE:

Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California
by calling; 1 (800) 464-6595;
or (925) 934 6320, Walnut Creek, California;  or  (415) 982-1110, San Francisco, California

or by e-mail at:    rexcrandell@astound.net

http://www.rexcrandell.com/

http://www.taxrexcrandell.com/

We would be happy to hear from you.

…FROM REX CRANDELL’s OFFICE…

Please contact our office if you have any questions.

Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

image002

============================================

FROM:

Rex L. Crandell Firm

Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
—————————
E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Internet 4th Web https://taxnewsonlinereport.wordpress.com/ 
Skype Address rex.crandell
Fax: (925) 934-6325
———————–

All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept.  Tax News Blog Update
Walnut Creek, California 94598-9305 United States of America
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IT'S TAX TIME.  BETTER GET YOUR PAPERS AND FILES READY EARLY. IT’S TAX TIME. BETTER GET YOUR PAPERS AND FILES READY.
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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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STATEMENT PURSUANT TO IRS CIRCULAR 230: The drafter of this document did not intend nor write this document for the purpose that this document would be used to avoid any penalty imposed by a taxing authority, for promoting, marketing or recommending this advice to another party. The recipient of this document may not use this document for that purpose. Rex Crandell Firm would be pleased to prepare or arrange to have prepared by legal counsel, as applicable, a document that would meet the specific requirements of IRS Circular 230 and could be used for those purposes. Please advise us if you desire such a document.

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Tax Guidance for Legally Married Same-Sex Couples

Under a joint IRS and U.S. Department of the Treasury ruling issued in 2013, same-sex couples, legally married in jurisdictions that recognize their marriages, are treated as married for federal tax purposes, including income and gift and estate taxes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

In addition, the ruling applies to all federal tax provisions where marriage is a factor, including filing status, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA and claiming the earned income tax credit or child tax credit.

Any same-sex marriage legally entered into in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country is covered by the ruling. However, the ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Legally-married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, but are not required to, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012. Some taxpayers may have special circumstances, such as signing an agreement with the IRS to keep the statute of limitations open, that permit them to file refund claims for tax years 2009 and earlier.

In addition, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pre-tax and excludable from income.

Questions?

If you need to file a claim for a refund or have any questions about the IRS ruling, please let us know. We are happy to assist you.

ITS TAX TIME Y ALL _GIF  15 FEB 14

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A MESSAGE FROM REX CRANDELL’S TAX OFFICE:
Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements. Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.
You can contact Rex Crandell’s offices in Walnut Creek and San Francisco, California by calling; 1 (800) 464-6595 Toll Free or (925) 934 6320, Walnut Creek or (415) 982-1110, San Francisco ; and you can contact our office by e-mail at rexcrandell@astound.net
http://www.rexcrandell.com
http://www.taxrexcrandell.com
We would be happy to hear from you.
…FROM REX CRANDELL’s OFFICE…
Please contact our office if you have any questions.
Very truly yours,
/s/ Rex L. Crandell
Rex L. Crandell. CPA, Esq.

Rex at Calif CPA Society Building 2013_JPEG

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FROM:
Rex L. Crandell Firm
Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing [ Click For MAP TO OUR OFFICE]
(925) 934-6320
————————-
San Francisco Office
425 Market Street
22nd Floor [ Click For MAP TO OUR OFFICE]
(800) 464-6595
————————————————-
E-Mail: mailto:rexcrandell@astound.net
Internet: http://www.rexcrandell.com
Internet 2nd Web http://taxrexcrandell.com
Internet 3rd Web http://estateplanningreport.wordpress.com
Skype Address rex.crandell
Fax: (925) 934-6325
————————————————-
All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305-Dept. Web New Tax News Online Report
Walnut Creek, California 94598-9305 United States of America
___________________________________________________________________

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ITS TAX TIME Y ALL _GIF  15 FEB 14

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This newsletter is intended to provide generalized information that is appropriate in certain situations. It is not intended or written to be used, and it cannot be used by the recipient, for the purpose of avoiding federal tax penalties that may be imposed on any taxpayer. The contents of this newsletter should not be acted upon without specific professional guidance. Please call us if you have questions.

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Rex Crandell’s Tax Office relays the suggestions that Nina Olson advised Congress her opinions on how the IRS could be improved to provide better service for taxpayers.  In addition she made her views known as to how the IRS could improve it’s public image.  It was a constructive presentation and dialog. 

Will her suggestions make their way to congressional mandated IRS conduct?   That is unknown at this time.  But stay tuned for future reports as the developments become available.

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09 JAN 2014   TAX NEWS.
Tax Issue Number:IR-2014-3

NATIONAL TAXPAYER ADVOCATE DELIVERS ANNUAL REPORT to CONGRESS;  FOCUSES on TAXPAYER BILL OF RIGHTS and IRS FUNDING. 

 

WASHINGTON —The National Taxpayer Advocate, Nina E. Olson today released her 2013 annual report to Congress, urging the Internal Revenue Service to adopt a comprehensive Taxpayer Bill of Rights – a step she said would increase trust in the agency and, more generally, strengthen its ability to serve taxpayers and collect tax. The Advocate also expressed deep concern that the IRS is not adequately funded to serve taxpayers, pointing out that the IRS annually receives more than 100 million telephone calls from taxpayers and that, in fiscal year 2013, the IRS could only answer 61 percent of calls from taxpayers seeking to speak with an IRS customer service representative.

“The year 2013 was a very challenging one for the IRS.  Because of sequestration, the IRS’s funding was substantially cut, which translated into a reduction in taxpayer service,” Olson said in releasing the report. “Public trust in its fairness and impartiality was called into question because of reports the IRS subjected certain applicants for tax-exempt status to greater review based on political-sounding names.  And because of the 16-day government shutdown, the agency could not complete preparations for the upcoming tax filing season on time, delaying the date on which taxpayers can first file returns and claim refunds.”

Olson continued: “From challenges can come opportunities, and this report presents a ‘21st century vision’ designed to meet taxpayer needs and enhance voluntary tax compliance.”

TAXPAYER BILL OF RIGHTS RECOMMENDED

The report reiterates the Advocate’s longstanding recommendation that the IRS adopt a Taxpayer Bill of Rights (TBOR). In a prior report, Olson analyzed the IRS’s processing of applications for tax-exempt status and concluded its procedures violated eight of the ten taxpayer rights she has proposed. Today’s report argues that the rationale for a TBOR is much broader.

“Taxpayer rights are central to voluntary compliance,” the report says. “If taxpayers believe they are treated, or can be treated, in an arbitrary and capricious manner, they will mistrust the tax system and be less likely to comply with the laws voluntarily. If taxpayers have confidence in the fairness and integrity of the system, they will be more likely to comply.”

The report emphasizes that the U.S. tax system is built on voluntary compliance. Ninety-eight percent of all tax revenue the IRS collects is paid timely and voluntarily. Only 2 percent results from IRS enforcement actions. For the taxpayer, voluntary compliance means not having to face IRS enforcement. For the government, voluntary compliance is cheapest, because enforced compliance requires the IRS to devote resources to detecting and collecting amounts that are not voluntarily reported or paid.

While arguing that knowledge of taxpayer rights promotes voluntary compliance, the report cites a survey of U.S. taxpayers conducted for TAS in 2012 that found less than half of respondents believed they have rights before the IRS and only 11 percent said they knew what those rights are.

“The Internal Revenue Code provides dozens of real, substantive taxpayer rights,” the report says. “However, these rights are scattered throughout the Code and are not presented in a coherent way. Consequently, most taxpayers have no idea what their rights are and therefore often cannot take advantage of them.”

The report calls on the IRS to take the taxpayer rights that already exist and group them into ten broad categories, modeled on the U.S. Constitution’s Bill of Rights. The report says the “simplicity and clarity” of a thematic, principle-based Taxpayer Bill of Rights would help taxpayers understand their rights in general terms.

“A Taxpayer Bill of Rights would serve as an organizing principle for tax administrators in establishing agency goals and performance measures, provide foundational principles to guide IRS employees in their dealings with taxpayers, and provide information to taxpayers to assist them in their dealings with the IRS,” the report says.

The ten rights the Advocate is proposing are detailed in the report. Olson has been in discussions with senior IRS officials about publishing a TBOR, and TAS has just completed a series of focus groups with taxpayers and preparers to gauge reaction to, and comprehension of, the proposed list. Olson said the IRS has been open to publishing a proposed TBOR, and she will continue to work with the IRS leadership to refine and publish a TBOR during the coming year.

IRS FUNDING INADEQUATE

The report identifies the lack of adequate IRS funding as a top problem for taxpayers. Each year, more than 100 million taxpayers call the IRS for help and millions more visit IRS walk-in sites or send correspondence. Key metrics show the agency is increasingly unable to keep up with taxpayers’ demand for help in complying with their tax obligations.

“The requirement to pay taxes is generally the most significant burden a government imposes on its citizens,” the report says. “The National Taxpayer Advocate believes the government has a practical and moral obligation to make compliance as simple and painless as possible.” The report also points out that federal spending cuts, which are designed to reduce the budget deficit, have the effect of increasing the deficit when applied to the revenue collection agency.

Impact on Taxpayer Service.

The report says the IRS’s workload has increased over the past decade, and since FY 2010, IRS funding and staffing have been cut by 8 percent. The report highlights key areas in which the quality of taxpayer service has dropped to unacceptable levels:

  • Last year, the IRS could only answer 61 percent of calls from taxpayers seeking to speak with a customer service representative (CSR). That’s down from 87 percent ten years earlier, with half the decline occurring since FY 2010. In FY 2013, 39 percent of calls (some 20 million) simply did not get through.
  • Taxpayers who did get through had to wait on hold approximately 17.6 minutes before speaking with a CSR. That’s up from 2.6 minutes ten years earlier, a nearly six-fold increase, with nearly half the increase occurring since FY 2010.
  • Millions of taxpayers visit IRS walk-in sites each year for assistance. Ten years ago, the IRS answered some 795,000 tax law questions in the sites during the filing season. Last year, it handled about 110,000 tax law questions during the filing season – a reduction of 86 percent.
  • The IRS historically has prepared tax returns for taxpayers seeking its help, particularly for low income, elderly, and disabled taxpayers. Ten years ago, it prepared some 476,000 returns. That number declined significantly over the decade, and the IRS recently announced it will no longer prepare returns at all.
  • Last year, the IRS received about 8.4 million letters from taxpayers responding to proposed adjustments to their tax liabilities. As of the end of the fiscal year, 53 percent of taxpayer letters in the IRS’s “adjustments” inventory were considered “over age” (generally, more than 45 days old). That compares with “over age” percentages of 12 percent ten years earlier and 28 percent in FY 2010.
  • The IRS recently announced it will only answer “basic” tax law questions on its telephone lines and in its walk-in sites during the upcoming filing season and it will not answer any tax law questions after the filing season, including questions from the millions of taxpayers who obtain filing extensions and prepare their returns later in the year.

Olson made clear that the deficiencies in taxpayer service are attributable primarily to a lack of resources. Regardless of cause, she wrote, “it is a sad state of affairs when the government writes tax laws as complex as ours – and then is unable to answer any questions beyond ‘basic’ ones from baffled citizens who are doing their best to comply.”

The Advocate expressed particular concern about the magnitude and impact of cuts to the IRS’s training budget. Since FY 2010, the IRS’s training budget has been cut from $172 million to $22 million. “If IRS customer service representatives are not well trained, taxpayers calling for help are more likely to receive incorrect information or no information,” the report says. “If IRS enforcement employees are not well trained, auditors may make inappropriate adjustments and assessments, and collection employees may issue inappropriate levies or file inappropriate liens.”

Impact on Voluntary Compliance and Revenue Collection. The report notes that the cuts to IRS funding since FY 2010 have been made as part of across-the-board reductions to federal discretionary spending designed to reduce the budget deficit. But “the logic behind budget cuts simply does not apply to the funding of the IRS,” the report says. The IRS collected $255 for each $1 it received in appropriated funds in FY 2013. “If the Chief Executive Officer of a Fortune 500 company were told that each dollar allocated to his company’s Accounts Receivable Department would generate multiple dollars in return,” the report says, “it is difficult to see how the CEO would keep his job if he chose not to provide the department with the funding it needed. Yet that is essentially what has been happening with respect to IRS funding for years.”

Olson said IRS funding is shortchanged because the federal budget rules treat the IRS the same way they treat all spending programs – with no “credit” given for the revenue it collects.  “This procedure makes little sense when applied to the IRS,” she wrote. “For virtually every other spending program, a dollar spent is just that – it increases the deficit by one dollar. But a dollar spent on the IRS generates substantially more than one dollar in return – it reduces the budget deficit.”

The report reiterates the Advocate’s longstanding recommendation that the relevant congressional committees work together to develop new procedures to fund the IRS, with the goal of maximizing tax compliance, particularly voluntary compliance, with due regard for protecting taxpayer rights and minimizing taxpayer burden.

OTHER KEY ISSUES ADDRESSED

Federal law requires the Annual Report to Congress to identify at least 20 of the “most serious problems” encountered by taxpayers and to make administrative and legislative recommendations to mitigate those problems. Overall, this year’s report identifies 25 problems, makes dozens of recommendations for administrative change, makes five recommendations for legislative change, and analyzes the 10 tax issues most frequently litigated in the federal courts.

Among the “most serious problems” addressed are the following:

Need for Return Preparer Oversight. In 2002, the National Taxpayer Advocate began advocating for regulation of unenrolled tax preparers to protect taxpayers from incompetent and unscrupulous preparers. In 2011, the IRS began implementing regulations to register, test, and require continuing education for unenrolled preparers. In 2013, a U.S. District Court invalidated regulations governing the IRS’s testing and continuing education requirements, holding that they exceeded the authority of the Treasury Department to impose absent authorizing legislation. If the district court’s decision is upheld on appeal, the Advocate urges the IRS to adopt a multi-pronged strategy to protect taxpayers by pursuing education and enforcement options that are unambiguously within its purview. Of particular note, the Advocate recommends that the IRS give unenrolled preparers an opportunity to earn a voluntary testing and continuing education certificate and limit the ability of unenrolled preparers who do not earn the certificate to represent taxpayers in audits of returns they prepare. The Advocate also recommends Congress enact legislation to clarify that the IRS may regulate unenrolled paid preparers directly.

The IRS’s Conceptual Approach Toward Collection of Delinquent Tax Liabilities. The report urges the IRS to fundamentally reassess its traditional approach toward Collection. In her preface to the report, Olson cites third-party studies that often use the number of levies served and liens filed as a measure of the Collection function’s effectiveness. Contrary to this “conventional wisdom,” she notes, IRS Collection revenue actually increased in the aftermath of the IRS Restructuring and Reform Act of 1998 when the IRS reduced levies served by 94 percent and liens filed by 47 percent. Similarly, she notes that Collection revenue has increased slightly over the last few years, despite a 51 percent reduction in levies since FY 2011 and a 45 percent reduction in liens since FY 2010. Olson says that earlier personal contacts with delinquent taxpayers and more flexible use of payment options for financially struggling taxpayers, such as installment agreements and offers in compromise, would be more effective than increasing the number of levies and liens filed by automation. The report acknowledges that the use of levies, liens, and seizures remains appropriate with respect to taxpayers who can afford to pay their tax liabilities but refuse to do so.

The Impact of the IRS’s Offshore Voluntary Disclosure Programs on Taxpayers Who Make Honest Mistakes. The IRS has sought to increase enforcement of Foreign Bank and Financial Accounts (FBAR) reporting and similar information reporting requirements in recent years and has offered a series of offshore voluntary disclosure (OVD) programs to settle with taxpayers who have failed to file the required forms. However, the report says, the programs impose excessive penalties on taxpayers whose failure to file was not “willful.” Analyzing results from the IRS’s 2009 OVD program, the Advocate found the median offshore penalty was about 381 percent of the additional tax assessed for taxpayers with median-sized account balances, and 580 percent of the tax assessed for taxpayers with the smallest account balances (i.e., the bottom 10 percent, with an average $44,855 account balance). Taxpayers who “opted out” of the OVD program and agreed to subject themselves to audits fared better but still faced penalties of nearly 70 percent of the tax and interest. While FBAR penalties are computed as a percentage of account balances rather than tax liabilities, the report offers the comparison to illustrate that the penalties are often Draconian and may deter other taxpayers from coming into compliance.

New TAS Research Studies on Tax Compliance. Volume 2 of the report contains six research studies, including three that relate directly to tax compliance:

  • An assessment of accuracy-related penalties imposed on Schedule C filers found that penalties do not increase future reporting compliance.
  • A comparison of the effectiveness of Revenue Officers (ROs) and the IRS’s Automated Collection System (ACS) in addressing employment tax liabilities found that ROs collected more dollars and resolved delinquencies more quickly than ACS, but neither channel was effective at promoting future tax compliance.
  • A study regarding tax compliance by sole proprietors found that taxpayer service and social norms were the two most influential factors affecting compliance behavior.  Contrary to expectation, the study found that traditional deterrence theory did not play a role in promoting compliance, possibly because sole proprietors were particularly motivated by short-term cash flow needs.

Volume 2 also contains an analysis designed to further the National Taxpayer Advocate’s 2009 recommendation that the IRS develop a plan and timeline to achieve an accelerated third-party information reporting and document-matching system. The analysis describes the steps that must be taken and the benefits to taxpayers and the IRS of accelerating receipt and processing of third-party information reports, such as Forms W-2 and 1099.

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Please visit www.TaxpayerAdvocate.irs.gov/2013AnnualReport for more information about this report, including an Executive Summary and downloadable infographics on the Most Serious Problems.

Related Items: 

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About the Taxpayer Advocate Service

The IRS Taxpayer Advocate Service is an independent organization within the IRS and is the taxpayer’s voice at the IRS. TAS employees help taxpayers who are experiencing financial difficulties, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving problems with the IRS; and taxpayers who believe an IRS system or procedure is not working as it should. If you believe you are eligible for TAS assistance, you can reach TAS by calling; 877–777–4778; (toll-free);

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The following is a prior year video presentation by Nina Olson.  I was unable to locate her most recent annual report to Congress that was held late in 2013 or early in 2014.   She is very informed about the subject of income taxation and income tax administrative procedures.

http://youtu.be/DR2yHf2vIDs


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Source link for above report:
http://content.govdelivery.com/accounts/USIRS/bulletins/9db148?reqfrom=share
The Internal Revenue Service published the above report on it’s website on 09JAN2014

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A MESSAGE FROM REX CRANDELL’S TAX OFFICE:
Our firm provides income tax preparation and planning services for individuals, families, C Corporations, S Corporations, LLC Limited Liability Companies, Partnerships, domestic partners, for income and deductions generated in California, the United States, and assist taxpayers internationally comply with the USA income tax reporting requirements.  Rex Crandell, Esq. also provides services in the area of Estate Planning, Estate Administration, Probate Procedures, Advance Healthcare Directives, Durable Powers of Attorney for Financial Management, and Advance Health Care Directives.

You can contact Rex Crandell’s income tax offices in Walnut Creek and San Francisco, California by calling; 1 (800) 464-6595;  or  (925) 934 6320; and you can contact our office by e-mail at rexcrandell@astound.net

http://www.rexcrandell.com

http://www.taxrexcrandell.com

We would be happy to hear from you.

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Rex Crandell & Firm is not affiliated with any governmental agency and does not claim to be a government employee nor have any special insider affiliations with any governmental agency.  This report is to explain to the public an event regarding income taxation that was presented for consideration to the United States House Ways and Means Committee and the Senate Finance committee early in the year 2014. Congress is not required to take any specific action regarding the recommendations presented. This is because the information is designed exclusively for advisory purposes by the Taxpayer Advocate Office which is NOT under the control of the Commissioner of the Internal Revenue Service.

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CALIFORNIA FTB ‘READY TAX RETURN’ IS FREE,
ONLINE & HOW MARVELOUs.
(AND A WONDERFUL WAY TO MISS TAX DEDUCTIONS SO YOU CAN PAY TOO MUCH TAX, WHICH IS ALSO EASY AND FREE BUT ACTUALLY COST YOU A LOT IN EXTRA TAX UNDER THE BANNER OF ‘FREE’. SO IT IS NOT REALLY FREE.)

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FTB~JPEG~READY TAX RETURN~FROM 1099 INFO~LOOSE YOUR DEDUCTIONS~& IT IS FREE rlc 12 03 13_JPEG

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The program presented by the California State Franchise Tax Board looks so slick and easy. The cute gal tells you how easy it is to file your tax returns from the IRS Forms that are turned in by third party vendors on transactions they had with the tax payer during the year.

What is include is mostly income items because third party vendors are not usually required to give IRS Form 1099 type information to the government so that you get the proper deductions so you pay the proper tax after subtracting your deductions. They would include, but are not limited to the following: IRS Forms 1099 for interest income, dividend income, stock sales, real estate sales, and miscellaneous income from personal services. It would include the IRS Forms W-2 for wages you earned during the year and this one is so very obvious. It would also include the IRS Forms 1098 which are the bank and mortgage company reports on how much interest you paid on your home mortgage during the year and is an itemized deduction. The IRS Forms 1098 frequently do not show the amount of property tax you paid on your personal residence or on a rental property, so something is likely missing from your deductions.

 The problem is that the cute FTB spokesperson fails to tell the public about any of the pitfalls in the program.

  •   Does it also file your Federal IRS Tax returns at the same time? No.
  •   Does it make sure that your Federal IRS Tax returns match the same information on the CA FTB tax returns? No.
  •    Is it likely to encourage people not to be detailed and focused so that they do not miss any valid tax deductions that would reduce their tax liability? No.
  •   Does it offer helpful checklists so that you pay the lowest possible income taxes? No.
  •    Is it really free if you end up paying more tax than you need to pay by helping to omit tax deductions that you are entitled to claim? No.
  •   Does is say you have to come to the free & easy website with your federal income tax returns already completed so you can transfer your federal adjusted gross income on to the starting point of the state tax forms? No.
  •   Does it advise you that the accuracy of IRS Forms 1099 and other third party vendor reports may not be accurate and completely posted to your tax file information already in the FTB’s file because the FTB frequently gets most of its IRS Form 1099 information from the IRS and the IRS records are not normally reliable until September each year for the prior year data. This is long after the close of the tax year when the state tax filing due date is April 15? No.
  •   Does the nice spokesperson actually tell the consumers about the very limited types of taxpayers who would benefit from this free service meaning those with only W-2 wages and no deductions so essentially they would be filing a short form in the first place? No.
  •   Does the promotion say that Income Tax Forms have always been free from the government so why is being free on the internet any type of novel event or marvelous opportunity? No.
  •    With all the possible pitfalls in the program does it appear that adequate consumer warnings are included to keep the program offering from possibly being misleading to the intended users of the service? No.
  •    Is getting the program password, qualifying criteria, waiting for approval to the program so you can participate in the free and easy service sound easier than just getting a free and easy Short Form FTB 540-EZ, filling it out without a password, without an internet connections and paying a whopping 46 cent plus the cost of an envelop make the program a valuable improvement in meeting your tax reporting and taxpaying obligations? No.
  •    Would the State FTB obtain a benefit by increased tax ‘revenue’ if the taxpayer went to tax professional, show charged a fee that was less than the tax saved for the service and reduced the taxpayers overall cost on the entire transaction?  No.

So the program might have been designed for people who primarily have super simple tax returns in the first place where all their income comes mostly from wages, have low income, qualify for the program, and have nothing to deduct. I will not come to that conclusion for you. I am only evaluating the situation and will leave it up to your own judgment and your own conclusions for you to decide if the program would be a benefit for you or not.

You can see the following video on the program to help you in your evaluation process.

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These are the facts.  You can decide for yourself.
No tax or other professional services or recommendations are being offered in this news story.

FROM:
Rex L. Crandell Firm
Walnut Creek Office (For UPS/FedEx/OR if Signature Req’d Documents)
3000 Citrus Circle
Suite 207 – West Wing         [ Click For MAP TO OUR OFFICE]
(925) 934-6320
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San Francisco Office
425 Market Street
22nd Floor                               [  Click For MAP TO OUR OFFICE]

(800) 464-6595
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E-Mail:            mailto:rexcrandell@astound.net
Internet:           http://www.rexcrandell.com
Internet:           http://www.taxrexcrandell.com
Fax:                           (925) 934-6325
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All U.S. Mail items [Except if Signature is required]:
P.O. Box 30305- Dept.  Tax News Online
Walnut Creek, California 94598-9305 United States of America
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You can ignore any possible advertisements beyond this line.
They are not controlled by the authors of this news story.

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